Galaxy takes out coronavirus loans

Macau casino operator Galaxy Entertainment Group says it has subscribed to US$12.9 million worth of special social bonds issued by Bank of China.

The casino firm said in a Thursday announcement that the proceeds from its subscription to the instruments – described as Covid-19 impact alleviation social bonds – would be used to provide “special loans and reduce the financing costs of Macau small and medium-sized enterprises that provide healthcare and medical supplies or manufacture medical devices.

GGR Asia reports that Galaxy Entertainment said this was to “support the recovery of the local production and supply of epidemic-prevention and control products.”

The statement said the instrument was the first certified social bond issued by a Chinese financial institution.

Galaxy Entertainment’s vice chairman, Franchis Lui Yiu Tung was quoted in the announcement as saying the subscription would “help offer prompt and efficient assistance to local SMEs and alleviate their operating and financing pressures amid this critical period.”

Lei Wai Nong, Macau’s Secretary for Economy and Finance, also attended a Thursday ceremony marking the bond subscription announcement.

Other Galaxy Entertainment initiatives during the coronavirus alert have included waiving the fixed-rental fee for all the group’s tenants during February, said the firm.

That is understood to be a reference to shops and food and drink outlets at the company’s casino resorts.

Its flagship Cotai property is a Galaxy Macau on Cotai.

It also runs Broadway Macau next door, which hosts Broadway Food Street, a mix of outdoor food stalls and small local restaurants.

The group’s main property on Macau peninsula is the StarWorld Hotel.

Investment analysts have noted that there is currently little clarity in terms of when the consumer side of the Macau gaming market – a key component of the local economy – will return to normality with travel restrictions out of mainland China, the biggest single market for the city’s gamblers, still in place.

Galaxy Entertainment has, in common with other Macau casino operators, been making donations amind the ongoing Covid-19 alert – of money, help and equipment to the Macau community and to Hubei province in mainland China, identified as the epicentre of the coronavirus outbreak.

All six Macau operators face the likelihood of a new public tender for Macau gaming rights, coinciding with the expiry in 2022 of their current gaming licences.

Economic domino effect of coronavirus

The coronavirus has caused casino shares to plunge due to travel bans, but the long term impact of the virus could make things even worse.

Calvin Ayre reported in February that Fitch Solutions Macro Research believes a slowdown of the Chinese economy is the real threat.

The research firm rightfully points out that the immediate threat is in restrictions on travel.

“Even if the coronavirus is contained, a prolonged slowdown of the Chinese economy would weigh on gaming revenues,” they wrote.

“Over the coming months, we expect Macau’s services exports, which accounts for approximately 80 per cent of GDP, to take a hit as the coronavirus epidemic will significantly impact tourist arrivals from the Mainland.”

The knock-on effect to the Chinese economy, and what that means to VIPs who would normally visit Macau, is the long term nightmare some are starting to realise.

“We currently forecast China’s real GDP growth to slow 5.9 per cent in 2020, from 6.1 per cent in 2019,” they wrote.

“Indeed, gaming revenues have already contracted by 2.5 per cent year-on-year over in January to November 2019, amid slowdown of the Chinese economy.”

That’s not all, the forecasts could get even worse.

Macau casinos are currently shut down for a period of no less than 15 days, to help deter the potential spread of coronavirus.

That closure period could go on longer.

“Given that a vaccine to the coronavirus has yet to be found, we note a significant risk of an extended closure of the casinos.”

This, added to Macau’s new focus on re-aligning with China’s interests, could also mean a severe lack of cash available to the region.

“However, given that gambling remains illegal in mainland China, Beijing could implement means to tighten scrutiny of funds flowing from Macau into the mainland.

This could introduce greater bureaucracy into the system and deter investors.”