Fitch Ratings Inc says it expects Macau’s gross gaming revenue (GGR) this year to be only 27 percent of 2019 levels, i.e., before the onset of the Covid-19 pandemic. The institution said on Thursday it had “reduced confidence” in Macau’s market recovery, given the existing travel restrictions.
“The [Macau] government’s Covid-19 policies continue to constrain the cash-flow generation ability of Macau’s operators,” wrote the Fitch analysts.
“We have updated Macau’s gross gaming revenue recovery curve to reflect our performance forecasts for 2022 to 2024 compared with 2019 levels at -73 percent, -50 percent and -30 percent, respectively,” the Fitch team added.
The ratings agency said its updated GGR assumptions “more accurately reflect the risks Macau operators are facing.” Covid-19 travel restrictions “may result in volatile and unpredictable changes, and China’s sporadic, large-scale shutdowns and recent economic volatility may impact premium mass and higher-end players,” it added.
Casino GGR in Macau was just below MOP292.46 billion (US$36.5 billion) in full-year 2019, before the health crisis took hold. According to Fitch estimates, the city’s casino GGR would reach about MOP78.96 billion this year.
Earlier this month, Macau’s Chief Executive, Ho Iat Seng, said the government was to reduce its 2022 GGR forecast for the city’s casino industry, which stands currently at MOP130 billion. The figure had been mentioned in November, in the fiscal budget plan for this year.
Aggregate casino GGR in the first five months of 2022 stood at MOP23.79 billion, a decrease of 44.0 percent in year-on-year terms. Such revenue amounted to just 18.9 percent of the casino GGR recorded in the first five months of 2019.
Fitch said also that it expected the risk of Macau’s six incumbent gaming concession holders “failing to secure a new concession is low but cannot be ignored.”
“The operators have invested billions in U.S. dollar-denominated capital, are major employers, pay a large amount of tax and support the government’s policy goals,” stated the ratings agency.
The licences of the six Macau casino operators had been due to expire on June 26, but the city’s government had invited the operators to apply to extend them until the end of the calendar year, as the Macau authorities work to prepare a fresh public tender process.
SJM, LVS downgraded
In a Thursday report, Fitch downgraded Macau casino operator SJM Holdings Ltd’s long-term foreign-currency issuer default rating, and its senior unsecured rating, to ‘BB-’, from ‘BB’. The firm’s ratings remain on rating watch negative, said the institution. A ‘BB’ rating indicates a “speculative grade” of investment, according to Fitch’s definitions.
“The downgrade reflects our reduced confidence in the recovery of Macau’s gaming industry as a result of the government’s strict Covid-19 pandemic-related policies, continued weak visitation and the delayed ramp up of the [firm’s] newly developed Grand Lisboa Palace,” stated the ratings agency.
The Grand Lisboa Palace (pictured), in Cotai, opened in July 2021, “but continues to run at limited capacity,” stated Fitch. SJM Holdings’ “leverage trajectory is no longer consistent with its previous rating level following our weaker gross gaming revenue forecast for Macau,” it added.
The institution said also that it expected SJM Holdings’ gross leverage “to remain well above” its “downgrade threshold of 4.5 till 2024.”
SJM Holdings said this week it received approval from the Macau government and a syndicate of banks for a HKD19-billion (US$2.4-billion) refinancing package.
“The refinance will boost liquidity by HKD5.7 billion after it repays its HKD13.3 billion loan due February 2023,” said Fitch.
In a separate report on Thursday, Fitch also downgraded the long-term foreign-currency issuer default rating of casino operator Las Vegas Sands Corp, and of two of its units, to ‘BB+’ from ‘BBB-’. The two units are Macau operator Sands China Ltd, and Marina Bay Sands Pte Ltd, the operator of the Marina Bay Sands casino resort in Singapore. The institution maintained the ‘rating watch negative’ tag on all ratings.
The ratings agency said the downgrade reflected its sluggish expectation regarding the recovery of Macau’s gaming industry, and its “recently reduced economic forecast for China.”
“Fitch has revised down its Macau industry-wide assumptions, and Las Vegas Sands’ resultant leverage trajectory is no longer consistent with an investment grade rating,” stated the report. “Las Vegas Sands continues to maintain conservative financial policies, which include holding a material excess liquidity.”
The institution said it expected Las Vegas Sands’ gross leverage “to remain elevated and inconsistent with investment grade until at least 2025.”
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