MGM China Secures $750M in Funding from U.S. Parent Company
Posted on: November 11, 2022, 03:05h.
Last update on: November 11, 2022, 04:01h.
MGM Resorts International (NYSE:MGM) will provide MGM China with a subordinated revolving credit facility of up to $750 million, becoming the latest U.S.-based parent company to extend credit to its Macau unit.
The Las Vegas-based casino operator made the announcement in regulatory filings with the Securities and Exchange Commission (SEC) and the Hong Kong Stock Exchange (HKSE). The financing has a term of two years with an annual interest rate of 4%, plus “the prevailing market rate”.
The agreement underscores both MGM Resorts International’s and the company’s confidence in Macau’s long-term growth potential. The availability of the facility further strengthens the company’s already strong financial position to meet future working capital and other financing needs,” according to the HKSE file.
As of the date of the announcement, the Bellagio operator owns approximately 56% of MGM China’s listed share capital. This Macau dealership operates MGM Cotai and MGM Macau.
MGM joins Rivals Sands, Wynn
With the news from MGM, the trifecta of US-based operators lending capital to Macau units is now over. Analysts widely expected the three to be forced to do so due to the collapse of the gambling industry in the special administrative region (SAR).
In June, Wynn Resorts (NASDAQ: WYNN) extended a $500 million credit facility to its Wynn Macau branch. Wynn is providing its Macau branch with the credit facility to support “potential future working capital and other financing needs, if required.” As of June 14, Las Vegas-based Wynn Resorts owned approximately 72% of the issued share capital of Wynn Macau. This happened about a month after Wynn Macau amended $1.5 billion credit facility.
In July, Las Vegas Sands (NYSE:LVS) announced it would lend $1 billion to Sands China. The Las Vegas-based casino operator is lending $1 billion to its Macau branch, repayable on July 11, 2028. For the first two years of the loan, Sands China Ltd. (SCL) has the option of paying 5% interest in cash, or 6% interest in kind per annum. After that, only cash interest at the annual rate of 5% will apply.
Sands China operates five integrated resorts in Macau, making it the largest operator there.
Why funding is crucial
MGM, Sands and Wynn are three of Macau’s six dealerships. But the current new SAR tender has seven participants thanks to the surprise entrance from Genting Malaysia. The territory’s new gaming laws make it clear that licenses will only be awarded to six operators.
This is one reason why the capital provided by US companies to their Macau units is crucial, as the financial health of dealers is a central issue in the re-tender program.
The same goes for the mandate that operators spend north of $1 billion in the coming years on non-gaming gear, which means essential dealers are proving they have the financial resources to hold that commitment.