Research firm casts doubt on Sands China's dividend outlook.
Sands China could prioritize lowering its debt levels prior to reintroducing its dividends.
This is according to Lucror Analytics, a research firm based in Singapore, who discussed this matter in a recent report sent to their clients. The potential for Sands China to resume its payouts came after its parent company, Las Vegas Sands (NYSE: LVS), decided to restore its quarterly dividend to 20 cents per share last week during the release of its second-quarter financial report.
Sands China might need approval from its creditors to reinitiate its dividend, and this chance could be increased by strengthening its financial position with reduced liabilities.
Sands China's Possible Dividend Resumption Not a Shocker
Las Vegas Sands paused its payments and that of Sands China in the early stages of the coronavirus pandemic in 2020, along with other operators who did the same to preserve cash while their Macau properties were temporarily closed due to the global health crisis.
In 2020 and 2021, Macau concessionaires borrowed a lot to maintain their businesses. Some agreements with lenders included specific requirements regarding the reinstatement of dividends. This includes the terms of Sands China's arrangement with their creditors in May.
Sands China's credit facility allows borrowing up to $2.49 billion, but if the revolving credit line is above $2 billion, the company must extend the period they don't pay dividends by 18 months.
During the second quarter, Sands China's net debt decreased by $701 million, or 8%, to $7.7 billion as the company used available funds to pay off $1.2 billion owed on a revolving credit facility.
Potential Improvement in Macau Could Help Sands China's Chances of Resuming Dividends
The growing recovery in Macau, where Sands China is the primary operator by market share, might support the case for resuming dividends. Analysts predict that July will be the best month for Macau's gross gaming revenue (GGR) since January 2020, and GGR in Macau could possibly reach 2019 levels before the end of the year.
However, Lucror mentions that the rebound in Sands China's GGR this year has been slower compared to some competitors. Despite this, the firm notes positive news for the operator of the Venetian Macau.
"Nevertheless, Sands China's GGR rebound this year has been less impressive than some rivals. However, Sands China's GGR recovered to 71 percent of the second-quarter 2019 level, outperforming the industry average of 62 percent," concluded the research firm.
Figure 1: Sands China's GGR Performance In 2022 Compared to Pre-Pandemic Level
- Sands China: 71% of the second-quarter 2019 GGR
- Industry: 62% of the second-quarter 2019 GGR
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Source: www.casino.org
