Macau Covid: Casino downturn gets worse and worse as lockdown extends

Macau has been under strict stay-at-home orders since last week as it battles a surge in coronavirus cases. Macau, a former Portuguese colony now under Chinese administration, is the target of Beijing’s “zero Covid” policy to eliminate all traces of the virus within its borders.

The latest restrictions in Macau were supposed to be in place for one week, but were later extended for another week, until Friday.

The authorities have taken the rare step of saying that the casinos will be part of the shutdown, which means a reversal of previous measures that have been taken. kept these properties open. This means that gross gaming revenue, an important measure of casino revenue, is likely to “drop to near zero” within a few weeks., This was announced by Vitaly Umansky, senior analyst at Bernstein.

His team predicts gross gaming revenue will drop by 98% this month compared to July 2019 – before the pandemic hit – assuming casinos reopen next week.

Gaming is by far the most important industry in Macau, providing mass employment and over 80% government revenue. But casinos like Wynn, MGM and Sands have suffered the consequences pandemic, causing the city’s borders to be largely closed for more than two years.
Major casino shares traded in Hong Kong such as Sands China (SHIF), Wynn Macau (WINMF) as well as MGM China (ICHF) have fallen by about 60% or more since the beginning of 2020.
Even before the latest restrictions, companies were losing money. In 2020, at the start of the global health crisis, Wynn reported that she was losing up to 2.6 million dollars day.

According to an analysis by Goldman Sachs, Macau’s broader gaming industry would be burning between $113 million and $260 million a month this spring.

“It’s very quiet here,” said Ben Lee, managing partner of IGamiX, ​​a Macau-based consultancy, adding that local small businesses have effectively become a “death knell” due to the new lockdown.

The economic lifeblood of the city

Macau, a tiny territory of about 600,000 people, is the only place in China where gambling is legal.

The city, which is an hour ferry ride from Hong Kong, is heavily dependent on tourists and tends to rake six times more gambling income than Las Vegas.. In 2019 he attracted nearly 40 million visitorsincluding many from mainland China.

There have been calls to change this model. In January, the International Monetary Fund warned of Macau’s “overreliance on the gaming sector,” which it said has come under scrutiny during the pandemic.

“The main driver of growth over the past two decades…has all but come to a halt as tourism has dried up,” it notes, pointing to the urgent “need to diversify the economy.”

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This sector is so important that sometimes it even seemed to be immune to the rules of “zero Covid”. During previous lockdowns, authorities have particularly refrained from shutting down shiny facilities, Li said, even if that meant workers would have to sit in empty casinos “chasing away flies.”

last time the casino was ordered to close for two weeks at the beginning of 2020.

“The Macau government is very, very reluctant to close casinos, even when all other businesses have been ordered to close,” he added. “Why? Because the staff can still get paid.”

Now officials are facing more pressure to live up to China’s tough stance on the virus, especially as Macau battles its biggest Covid outbreak since the start of the pandemic. The city has reported about 2,000 new cases since June, when the latest outbreak broke an eight-month streak of no infections.

People wearing protective masks walk in front of SJM Holdings' Lisboa Casino in Macau in March 2020.

Another factor affecting business lately, Lee said, is that officials have made it clear to casinos that they shouldn’t lay off workers.

While the unofficial decree helped protect people’s livelihoods, it added to the financial strain on companies. Payroll typically accounts for 20% to 25% of operating costs, Li noted.

This is, of course, exacerbated by the recent drop in traffic. In the report, Daiwa analysts said it was necessary to assess the liquidity of Macau casino operators, “against the backdrop of [a] zero income environment.

money crisis

The crisis is causing headaches for executives abroad.

Both Sands and Wynn recently asked their owners to help them weather the storm with loans secured by each of their US parent companies, Bernstein analysts said.

But the new restrictions also come at a particularly challenging time, as casino operators are soon expected to apply for a new license to continue operating in Macau, Li said.

He added that the process requires significant evidence of liquidity — in fact, hundreds of millions of dollars in cash.

So while businesses are already tight on funds, “the parent companies of these highly leveraged subsidiaries should invest in subsidiaries in Macau, [and] they have to carry that burden in the States or wherever they are,” Lee said.

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Despite the turmoil, Li doesn’t expect any operators to miss their chance to challenge the new licenses. Companies have already incurred large “sunk costs” in Macau, he said, pointing to some that recently renovated properties or made other major investments shortly before the pandemic.

“They can’t afford to leave because if they leave, they won’t have anything.”

– Sean Deng in Toronto and Lauren Lau and Akanksha Sharma in Hong Kong contributed to this report.

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