Issuers of U.S. dollar-denominated bonds linked to the Macau gaming sector have “proactively prepaid” some of them “through a tender process,” says a memo issued by investment manager Fidelity International Ltd.
“We expect to see more proactive debt repayment in 2025 as cash flows continue to improve” in the Macau gaming sector, “and issuers look to optimise their capital structures,” added Vanessa Chan, Fidelity International’s head of Asian fixed income investment directing.
She noted that steps already taken, had produced “positive rating actions” by ratings institutions “on several of these issuers”.
Ms Chan additionally observed: “We expect this trend to continue in 2025 as leverage profiles continue to improve.”
Macau has six casino concessionaires, though bonds to support such businesses have also been issued from time to time by linked entities.
Fidelity mentioned “eight issuers across approximately US$24 billion of bonds outstanding,” connected to the U.S.dollar bond-issuance sector in Macau, “with the sector growing by around US$2 billion compared to December 2019”.
This indicated “the resilience of the sector as the broader Asian high-yield universe shrunk in size,” it stated.
Ms Chan’s update added: “In terms of market weight, the Macau gaming sector has increased from 1.7 percent to 2.4 percent in the JACI [JP Morgan Asia Credit Index], and has almost doubled from 6 percent to 10 percent in the JACI Non-IG [non-investment grade].”
The JACI tracks liquid, U.S.-dollar denominated debt instruments issued out of Asia, excluding Japan.
Fidelity said that “over the last few years,” the JACI Macau Index “has witnessed strong returns within the Asia credit universe, with the five-year annualised return – as of 30 November 2024 – at 4.1 percent, compared to JACI, JACI Investment Grade, and JACI Non-Investment Grade at 1.1 percent, 1.7 percent and -0.6 percent respectively.”
JP Morgan says its JACI suite of indices is one of the most widely followed benchmark systems in the region, and covered more than US$125 billion in assets under management as of May last year.
