Beyond Macau, casinos face virus risks in cash flow

Beyond Macau, Asia Pacific casino operators are exposed to the consumer sector in mainland China, so there is a cash flow risk (in some cases a debt service risk) regarding the coronavirus emergency in China.

This is what S&P Global, a credit rating agency, said on a bill issued last week.

The impact of the ongoing coronavirus crisis on cash flows for Macau casino operators will be "significant as the virus spreads and prevention measures by local governments continue," ratings agency Fitch said in a note on Thursday.

S&P's self-evaluation of the topic by analysts Emile Courtney and Melissa Long addressed it, and also looked at the impact of the crisis on the casino sector.

The World Health Organization, the U.N. agency, said it had declared the outbreak a "public health emergency of international concern" after a meeting on Thursday. Seventeen countries outside of China have now had cases of the coronavirus, with most of the affected cases having a travel history to China. The Asia-Pacific region with one or more confirmed cases includes Australia, Cambodia, Japan, Malaysia, the Philippines, Singapore, South Korea, Sri Lanka, Thailand and Vietnam.

Seven of those 10 have an active and legally licensed casino sector. Some regions, such as Singapore, the Philippines, and Vietnam, recently announced travel restrictions that include all new visitors to mainland China.

"With high capital spending requirements in 2020, Genting Bhd has limited flexibility to absorb significant and long-term cash flow declines in Singapore or Malaysian casinos, we believe Singapore is far more reliant on Chinese visits than Malaysia."

Genting Unit Genting Singapore Ltd operates the Resorts World Sentosa gaming resort in Singapore, and Genting Malaysia Ltd operates the latter's only licensed casino complex, Resorts World Genting, near the Malaysian capital, Kuala Lumpur.

Turning to the Philippine casino market, S&P Global said, referring to a Japanese entertainment giant, "Universal Entertainment is also facing the potential for reduced cash flow at its Okada Manila resort in the Philippines, which contributes more than 50% of its total revenue."

Analysts added: "We believe visitors from mainland China make up a fraction of the resort's customers. However, we believe the profit contribution of visitors to China is minimal compared to potential revenue exposure."

The authors also said: "We already have a negative outlook that signals downside risk to the company. If prolonged visits to resorts weaken our operating performance and leverage stays more than triple in fiscal 2020, we may consider lowering our ratings."

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