Macau’s Covid crackdown leaves Stanley Ho’s SJM casino group burning cash

SJM Holdings, the Macau casino empire founded by the late gambling tycoon Stanley Ho, is burning through its cash reserves as the Chinese territory tightens a zero-Covid regime that has already sent gambling revenues plunging.

Macau began mass coronavirus testing on Sunday to contain its worst outbreak yet, prompting falls in Hong Kong-listed casino stocks including SJM, which ended on Monday down 3.2 per cent.

Analysts have highlighted concerns about the cash available to SJM. JPMorgan said in a note on Sunday that SJM’s liquidity would be enough to sustain it until March next year if it was not able to generate any revenues, the shortest period among Macau’s big casino operations.

Total gross gaming revenues in Macau were just $413mn last month, a nearly 90 per cent drop from pre-pandemic levels. With dozens of Covid infections reported over the weekend — the most in the former Portuguese colony since the start of the pandemic — analysts said casinos’ revenues were likely to fall to “near-zero levels”.

Macau, which is following the zero-Covid policy set by President Xi Jinping on the Chinese mainland, suspended school classes on Sunday and urged restaurants to halt dine-in services. Shares in local casino operator Wynn Macau fell 3.4 per cent, while rivals MGM China and Sands China both dropped 2.2 per cent.

Last week, rating agency Fitch downgraded SJM’s senior unsecured debt from double B to double B minus, citing “reduced confidence in the recovery of Macau’s gaming industry”.

“SJM remains our least preferred name within Macau,” JPMorgan analyst DS Kim wrote in a note last week that was issued after the group announced the approval by authorities and banks of a HK$19bn (US$2.4bn) loan refinancing deal.

SJM would have an estimated $710mn in cash liquidity available by mid-2022, according to JPMorgan, meaning it could last roughly nine months with zero revenues and monthly spending of $80mn to sustain its operations.

Sands China, with estimated liquidity of $1.6bn, could also only maintain spending until March next year given monthly cash burn of $168mn, JPMorgan said. It said other operators such as Wynn, MGM and Melco had liquidity enough to sustain them until at least mid-2024 even with zero revenue.

SJM founder Ho, who dominated gambling in Macau for decades, died in 2020. The group is headed by Daisy Ho, a daughter of the late patriarch.

The company announced last month it would buy the Casino Oceanus from the group’s main shareholder Sociedade de Turismo e Diversões de Macau, paid for with HK$1.9bn (US$242mn) in new convertible bonds. JPMorgan analysts said in another note they did “not like the timing” of the move, which came as the company was suffering “severely from a liquidity strain”.

Hoffman Ma, an executive at Success Universe, which has invested in SJM’s Ponte 16 resort, said he believed there were only “limited worries” about the casino operator following the approval of its recent loan refinancing. But Ma said the Covid outbreak still posed risks for the gaming industry.

“We can forget about any [revenue growth] for June with at least half of this month’s revenue expected to disappear,” he said. “We will also need to observe how quick the revenue rebound would be after the pandemic gets under control.”

Asked about its cash liquidity, SJM declined to comment other than reiterating news of its loan refinancing.

Casino operators are also bracing for the Macau legislature’s expected approval on Tuesday of a revised gaming law that increases government scrutiny and imposes more stringent financial requirements.

Additional reporting by Primrose Riordan in Hong Kong