Temporary closure of casinos around the world disrupted the core of the gaming industry and forced casino operators to take some unpopular measures to maintain the necessary operability state to be able to resume business the moment the ongoing health crisis resides. One thing is certain, though: burning cash reserves is inevitable.
Donaco International, the Australian-based gaming company and operator of the Star Vegas Resort and Club in Cambodia, and Aristo International Hotel and Casino in Vietnam, issued a business update for the Australian Stock Exchange /ASX/, regarding the implications from the current situation caused by the spread of the coronavirus.
Drastic Measures Related to Staff
The decisions of both Cambodia’s and Vietnam’s Governments to close down casinos starting April 1 would have material impact on Donaco’s operations and would force the company into taking some difficult but necessary actions, the company informed.
“The situation we are facing with the COVID-19 pandemic is unprecedented and we’ve unfortunately had to take some drastic measures with our staff, including redundancies and pay cuts. This is to ultimately ensure the business remains afloat and to be in a healthy financial position once we eventually rebuild the team and restart operations. We will continue to monitor developments and will provide further updates in due course once measures underway are further progressed.”Mel Ashton, Chairman, Donaco International
Obviously, Donaco would have to implement a series of measures related to its workforce, to help reduce the fixed costs during the period with no revenues, to ensure the company’s sustainability in the future.
Cash Reserves Depletion
Even with all measures being implemented, during the temporary shutdown of both casinos, Donaco expects to burn cash reserves to the extent of $900,000 per month, to cover costs associated with maintaining casino assets, as well as other associated corporate costs. As of March 31, the company reports a cash balance of $11.6 million, which will be enough for almost a year at the expected rate of cash burn.
Liquidity is the other concern for the company and one way for Donaco to boost it is through a review and reduction in its capital expenditure where possible. Another way to ensure the provision of cash is through injecting extra capital, either by deferring maturing payments or by providing additional loan facilities.
Amendment to Covenants
Indeed, Donaco’s update to the ASX confirmed it was in ongoing discussions with its main principal lender, Mega International Commercial Bank, regarding the settlement of litigation with the vendors of the Star Vegas business, as well as seeking to amend its June 30, 2020 debt covenants.
Donaco reiterated its stance that it was closely monitoring the situation and would timely update markets in case of material changes to working capital spend.