Ratings agency Moody’s Investors Service on Wednesday affirmed Macau’s government debt issuer rating at “Aa3”, upgrading the outlook to “stable” from “negative”. The ratings agency said the outlook change reflects the “assessment that credit risks have become broadly balanced”.
In May last year, Moody’s had downgraded Macau’s rating to “Aa3” from “Aa2” and assigned it a negative outlook.
“Aa3” is three notches lower than the highest rating. According to Moody’s rating definitions, ratings in the “Aa” category are high investment grade and are subject to very low credit risk.
Moody’s said that the factors driving the rating affirmation and stable outlook included: the preservation of fiscal and external buffers that provides significant room to counter future negative shocks; ongoing progress on diversification that bolsters prospects for more resilient gross domestic product (GDP) growth; and signs of policy effectiveness that support institutional strength.
“Macau’s economy is returning to growth following the sharp recession of 2014-2016. Gross gaming revenues [GGR] have been increasing on an annual basis since August 2016, boosted by the opening of two new casinos late last year and a recovery in tourism from China,” said Moody’s in Wednesday’s report. “With the economy recovering, we expect Macau to build additional buffers in coming years,” it added.
May is expected to be the 10th month of consecutive GGR growth in Macau. Investment analysts have said this week they expect the monthly tally for May to increase between 14 percent and 20 percent from the prior-year period.
Macau market’s GGR tally for the first four months of 2017 stood at MOP83.64 billion (US$10.43 billion), a year-on-year expansion of 13.8 percent.
In Wednesday’s report, Moody’s said that the “ongoing shift to mass-market gaming, from VIP gaming, will support the profitability of gaming operators and enhance the resilience” of Macau’s gaming sector.
In the breakdown for first-quarter 2017, mass-market revenue as a proportion of all casino GGR in the period stood at 44.1 percent, slight down compared to 45.9 percent a year earlier. But that is still a considerable increase compared to a share of 27 percent in 2011, said Moody’s.
“Rising incomes in China and Macau’s proximity to the mainland will continue to support demand for Macau’s well-established gaming and tourism market, even in the face of growing competition from other parts of Asia,” said the ratings agency.
It added: “We expect Macau’s economic recovery to endure over the next two to three years, supported by the ongoing diversification towards non-gaming activities.”
The report also mentioned that the Macau’s government’s “healthy balance sheet offers it the means to support the ongoing economic transition and mitigate potential negative shocks”.
The Macau government has recorded total revenue of MOP35.90 billion for the first four months of 2017, up by 10.6 percent compared to the same period last year. Direct taxes on gaming accounted for 83.3 percent of the total revenue in the period.
Moody’s however warned that Macau will remain exposed to a number of potential shocks, “particularly those related to economic, financial and policy developments on the mainland”.
On Wednesday, Moody’s downgraded by one notch China’s long-term local and foreign currency issuer ratings, to “A1″ from “Aa3″. The organisation cited challenges caused by years of credit-fuelled economic stimulus. Reuters news agency said it was Moody’s first credit downgrade for China in nearly 30 years.
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"The [Macau] government has a lead in this subject in regards to what should be done after the [gaming] concessions expire. We will be first listening to what the government will say”
Ambrose So Shu Fai
Vice-chairman and chief executive at Macau casino operator SJM Holdings