“Slightly weaker-than-expected rebound” in the Macau casino market when nonetheless combined with “strong performance” in the Singapore casino market help support overall Las Vegas Sands Corp’s ‘BBB–‘ with ‘Stable’ outlook credit rating.
That is according to a Friday memo from Fitch Ratings Inc.
The United States-based Las Vegas Sands (LVS) runs a collection of Macau casino complexes under its Hong Kong-listed Sands China Ltd unit; and in Singapore the group’s Marina Bay Sands property is one half of that city-state’s casino duopoly.
Las Vegas Sands “benefits from its scale in Macau, competitive market positions in Macau and Singapore, and robust free cash flow generation,” said Fitch analysts John Kempf and David Lowenstein.
They added: “This is offset by a potentially heavy capital programme and potential weakness in the Chinese economy.”
Earlier this month, Las Vegas Sands said an expansion to Marina Bay Sands is now likely to be completed only by June 2030, with an anticipated opening date in January 2031.
The parent stated in October last year that it planned to invest US$8.0 billion in developing the second phase of the Marina Bay Sands complex.
In November it was reported Las Vegas Sands was seeking a circa SGD12-billion (US$8.98-billion currently) loan amid Singapore enlargement plans.
The Fitch analysts nonetheless noted in their Friday update that the stable outlook assigned to Las Vegas Sands “reflects increasing visitation to and spending in Macau and Singapore”.
This had led to a post-pandemic “normalisation of operations and created abundant liquidity that protects Las Vegas Sands from pockets of economic weakness,” added the Fitch commentators.
Achieving sustainable leverage below 3.5 times in terms of earnings before interest, taxation, depreciation and amortisation (EBITDA) “could lead to an upgrade” in the rating “in the next 12 to 24 months,” added Fitch.
The ratings institution said it thought the casino group was “committed to managing its balance sheet to uphold investment-grade ratings”.
Fitch added: “The company has a solid track record of clearly communicating its leverage policy and maintaining prudent balance sheet management.
“Management targets a gross debt ratio of 2.0 times to 3.0 times before development project impacts. While the company has a share repurchase programme and recently announced a dividend increase, free cash flow should be sufficient.”
Fitch stated that while the Macau gaming market had a “strong start” to trading in 2024, it had “slowed throughout the year,” in likelihood “due to the weakening Chinese economy”.
The institution said it estimated mass-market baccarat “has almost fully recovered” to pre-pandemic 2019 levels, “particularly in the premium mass segment, which is the company’s target market”.
While it was clear that the Macau VIP gambling market remained “well below” 2019 levels due to “the effective elimination of junket operations,” the recovery level in the base mass segment, “particularly unrated play, remains well below 2019 levels”.
Nonetheless, longer-term growth prospects were supported by new hotel rooms and amenities, including those by Sands China, which Fitch also rates at ‘BBB–‘ and ‘Stable’, as well as being supported by the mainland authorities’ “continued relaxation of travel restrictions,” as well as the expectation of China working at “boosting its economy”.
Fitch said Las Vegas Sands had funding “in place” for Sands China notes due in 2025, and the company had “sufficient cash on hand, free cash flow generation and debt capital access to address other upcoming maturities”.
Fitch stated that Las Vegas Sands’ Singapore operations remained “robust”.
The analysts said: “Singapore continues to generate a high level of EBITDA, although recent quarterly results have reflected the refurbishment of hotel rooms and, potentially, the impact of the weaker Chinese economy.”
The note authors added: “The market continues to benefit from the strength of the Singapore economy, growth in tourist arrivals” from markets without ethnic Chinese consumers, and “eventual completion of the current property refreshment”.
(Updated 8.06am, February 25)
