GGRAsia – Fitch downgrades SJM on refinancing delay, retender doubts

Fitch downgrades SJM on refinancing delay, retender doubts

Feb 21, 2022 Newsdesk Latest News, Macau, Top of the deck

Fitch Ratings Inc has downgraded Macau casino operator SJM Holdings Ltd’s long-term foreign-currency issuer default rating, and its senior secured rating, due to concerns about the firm’s “slow execution” on getting a new HKD19-billion (US$2.44-billion) loan.

The financial institution also cited in its Monday memo, concerns about “material regulatory uncertainty” over refreshment of SJM Holdings’ Macau gaming rights, with the current permit due to expire on June 26 this year.

The casino firm’s long-term foreign-currency issuer default rating, and its senior unsecured rating, were downgraded respectively to ‘BB’ from ‘BB+’. The rating on outstanding notes issued by a subsidiary, Champion Path Holdings Ltd, has also been downgraded to ‘BB’ from ‘BB+’. A ‘BB’ rating indicates a “speculative grade” of investment, according to Fitch’s definitions.

SJM Holdings is said to be seeking a new HKD19-billion long-term syndicated loan to repay existing HKD14-billion syndicated lending from banks, that is due to mature on February 28, 2022. Fitch highlighted delays the firm was said to face in in obtaining “necessary regulatory approvals” for a fresh loan.

“SJM Holdings has concurrently asked for a one-year extension on the maturity of the existing loans in the event that regulatory approvals are not obtained in time, which most banks have agreed to,” wrote Fitch analysts Samuel Hui, Adrian Cheng, and Kalai Pillay in Monday’s note.

The rating house said it expected SJM Holdings to be able to extend most of its existing loans. But the regulatory delays indicated that its liquidity management was “weaker-than-expected”, said Fitch.

Another ratings agency, Moody’s Investors Service Inc, announced on February 10, a downgrade on SJM Holdings’ corporate family rating, and its senior unsecured rating, on the bonds guaranteed by the firm. Moody’s also cited concerns about delay to SJM Holdings’ refinancing.

Fitch for its part, said on Monday there was “little visibility” regarding SJM Holdings’ refreshment of its Macau gaming rights, and what would be the “impact of the regulatory and operating environment” on the company’s cash flow and leverage.

Continuing Covid-19 related travel restrictions that had hindered the Macau casino industry’s recovery, had also driven the downgrade action, according to Fitch.

All Fitch’s assessments on SJM Holdings’ credit, remain on “rating watch negative”, the Monday release said.

That reflected the potential for “further negative rating action if SJM Holdings cannot fully refinance its maturities with long-term capital, if it fails to secure a new gaming concession or more onerous economic licensing conditions are imposed on SJM Holdings’ as part of new licensing conditions, or if the recovery in gaming revenue does not materialise as Fitch expects,” said the ratings house.

Market-wide, Macau’s casino gross gaming revenue is forecast to be “more than 40 percent below 2019 levels” this year, before recovering to “10 percent below 2019 revenue” by 2023, Fitch said.

The ratings house forecast SJM Holdings would see its earnings before interest, taxation, depreciation and amortisation (EBITDA) margin gradually recover to 2019 levels by 2024. The firm’s new Cotai property, Grand Lisboa Palace, is forecast by Fitch to achieve adjusted property EBITDA 0f HKD2.0 billion in 2023, and HKD3.5 billion in 2024.