Deleveraging takes priority over Sands China dividend.

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Posted on: July 24, 2023, 03:15h. 

Last updated on: July 24, 2023, 03:15h.

Sands China is likely to prioritize reducing leverage before resuming dividend payments.

Sands
Sands Cotai Central in Macau. Operator Sands China is likely to focus on paring debt before restarting its dividend. (Image: Sands China)

That’s the analysis of Lucror Analytics, a research firm based in Singapore, which discussed the matter in a recent report to clients. The uncertain short-term outlook for Sands China’s dividend comes after its parent company, Las Vegas Sands (NYSE: LVS), announced the reinstatement of its quarterly dividend at a rate of 20 cents per share. The announcement was made in conjunction with Las Vegas Sands’ second-quarter earnings report.

“This is as the company is required to meet leverage covenants from the first quarter 2024 onwards under the terms of its credit facilities,” said Lucror of Sands China.

In other words, the operator of five integrated resorts in Macau likely needs approval from creditors in order to restart its dividend, and the likelihood of that approval is expected to increase by strengthening its balance sheet, including reducing outstanding liabilities.

Sands China Dividend Outlook not Surprising

During the early stages of the coronavirus pandemic in 2020, Las Vegas Sands suspended its dividend payments as well as those of Sands China. Competitors also implemented similar measures to preserve cash during the closures of Macau properties due to the global health crisis.

In 2020 and 2021, Macau concessionaires borrowed heavily to sustain their operations, and certain agreements with lenders included provisions regarding the reinstatement of dividends. This includes an agreement that Sands China reached with creditors in May.

Under the terms of the new agreement, the credit facility allows for borrowings up to $2.49 billion, but Sands China must extend the period during which it doesn’t pay dividends by 18 months if borrowing on the revolver exceeds $2 billion.

In the second quarter, Sands China’s net debt decreased by $701 million, or 8%, to $7.7 billion as the company used cash to repay $1.2 billion of outstanding debt on a revolving credit facility.

Macau Recovery Could Help Sands China Dividend Case

The ongoing recovery in Macau, where Sands China has the largest market share, could support the restoration of dividends. Analysts forecast that July will be Macau’s strongest month in terms of gross gaming revenue (GGR) since January 2020, and that GGR in Macau could return to 2019 levels at some point before the end of this year.

However, Lucror noted that Sands China’s gross gaming revenue (GGR) rebound this year has been weaker compared to some competitors. Nonetheless, there is positive news for Venetian Macau’s operator.

“Still, Sands China’s GGR recovered to 71 percent of the second-quarter 2019 level, outperforming the industry,” the research firm concluded, noting that the industry was at 62 percent of pre-pandemic levels.

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