Bernstein Research took a detailed look at the liquidity of MGM Resorts and MGM China in a report issued last Thursday, concluding, among other things, that MGM China has funds to operate up to fifteen months even under Covid-19 worst case scenarios.
The analysts wrote, “As of year-end, MGM China had HK$3.0bn in cash on hand (adjusted for dividends announced) and HK$4.5bn under the revolver, bringing total availability to HK$7.5bn. In the unlikely worst case scenario where casinos were to be shut down (or with very low level of business) for an extended period of time and with limited ability to reduce expenses, MGM China has cash on hand to run for six months assuming worst case scenario of no revenues. By drawing fully on its revolver (with no other cost reductions), the operation would have run rate of 15 months.”
The parent company, MGM Resorts, could operate for a year without needing additional capital under similar conditions, they project.
Bernstein noted that there is discussion of MGM leaving Macau, but they concluded that these rumors are unlikely to come to fruition.
“While there has been talk by some investors about MGM selling its Macau operations, this construct is easier said than done. There are a whole host of issues with trying to divest MGM China, including finding a buyer that the Macau government would agree to (not a very easy foray) and also dealing with MGM’s partner, Pansy Ho, who would not necessarily look favorably at a new partner. That being said, there may always be some scenario that leads to divestiture,” they wrote.
As for the overall condition of Macau, they posited, “We are not expecting a turnaround in the near term. The key question surrounding Macau will be the timing of the reinstitution of visa issuances and a reversion of visitation back to normal levels. Once the Covid-19 situation stabilizes and outlook on contagion begins to improve, we expect recovery in Macau.”