Macau casino stocks tumble as city shuts down to tame virus

MACAU casino shares slumped along with dollar bonds on Monday (July 11) as the world’s largest gambling hub shut almost all business premises, including gaming venues, to try and contain its worst ever Covid-19 outbreak. 

A Bloomberg gauge of the city’s 6 licensed casino operators fell 5.5 per cent, and is down 20 per cent this year. Sands China tumbled 8.2 per cent, while Wynn Macau dropped 6.7 per cent.

Dollar bonds from SJM Holdings and Melco Resorts Finance fell as much as 2 cents on the US dollar on Monday, on pace for the most since June 23, according to prices compiled by Bloomberg.

Macau started a week-long citywide shutdown on Monday in a return to its toughest pandemic restrictions. All residents are banned from leaving their homes unless they have valid reasons, such as buying groceries and taking care of elderly people living separately. Essential services such as water and gas utilities, as well as businesses like supermarkets, pharmacies and hotels, will remain open.

The city reported 59 new cases for Sunday, bringing the total number of infections in the latest outbreak starting on June 18 to 1,526. Macau’s repeated rounds of mass testing to weed out transmission as early as possible, and now its shutdown, are typical of mainland China’s Covid Zero playbook. 

The casino shutdown - the first since an unprecedented 15-day closure in February 2020 - deals a substantial blow to an industry that accounts for 80 per cent of government income and a large portion of employment. Gaming revenue has already fallen more than 50 per cent every month since March amid a dearth of visitors after mainland China rolled out strict curbs to get its own outbreak under control.

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Citigroup cut its forecast for Macau’s July gaming revenue to 400 million patacas (S$69.4 million), implying a near-zero level of revenue for the rest of the month, analysts including George Choi wrote in a note on Monday. That would be the lowest monthly revenue the industry has seen during the pandemic, and nearly half the previous low in June 2020.  

The shutdown means “we would probably need to write off July and likely August,” said JPMorgan Chase analysts including DS Kim. He has previously estimated that most casinos could survive between 9 months and 2 years in a worst-case scenario of no revenue. 

Still, Macau’s new gaming law requires operators to set aside 5 billion patacas for bidding for new licences, which would shorten the liquidity runway, Kim said. SJM Holdings would only have 1 month of liquidity under the extreme scenario and Sands China 6 months, though Kim said he expects the companies to get extra funding from their parents. BLOOMBERG