Fitch Ratings Inc has upgraded the Issuer Default Rating (IDR) for casino operator Las Vegas Sands Corp and its subsidiaries, including Macau-based Sands China Ltd, to ‘BBB-’ from ‘BB+’. It also upgraded the subsidiaries’ senior secured credit facilities to ‘BBB’ from ‘BBB-’.
The research house added that the outlook for the firm is stable.
“Fitch’s upgrade of Las Vegas Sands’ IDR “mainly reflects the company’s demonstrated commitment to maintaining conservative financial policies since it started to wind down its comprehensive capital development pipeline and return cash to shareholders about three years ago,” the ratings agency said.
“The company’s publicly stated goal is to maintain gross leverage below about 3x before additional debt related to large-scale development,” it added.
“Other key drivers for Las Vegas Sands’ investment-grade IDR include its strong liquidity, robust discretionary free cash flow and significant capacity to monetise non-core assets,” Fitch said.
“Las Vegas Sands also maintains a strong business profile supported by high-quality assets in attractive regulatory regimes, which provides the company with the best global market exposure profile in the industry,” it added.
Las Vegas Sands currently runs three casino properties in the U.S., four in Macau and one in Singapore.
Gross gaming revenue in Macau has been pressured over the past several months due to the weakness in VIP and premium mass segments, according to official Macau government data. Investment analysts have also identified recent weakness in VIP revenues in the Singapore market.
“In Macau, gaming revenue is pressured by the corruption crackdown in China, credit tightening among junkets, increased visa restrictions and the recently implemented smoking ban,” Fitch said.
But it added that Las Vegas Sands “has lower than market average exposure to the VIP gaming segment (16 percent of Sands China’s profit), which equates to less volatile earnings in Macau.”
“Sands China’s year-on-year revenue declines have averaged 6 percent per month for the past six months since the declines started in June versus market average declines of 11 percent.”
Fitch is projecting negative growth in Macau gaming revenue of 2 percent in 2014 and 4 percent in 2015.
“The weakness in Macau is expected to persist through first-half 2015 until Galaxy Entertainment [Group Ltd] and Melco Crown [Entertainment Ltd] open their respective projects … and the negative trends that began mid-2014 are lapped,” said the research house.
In the note, Fitch also said it estimates Sands China’s Parisian Macao will open in mid-2016. The casino operator announced this week it had received the government approvals needed to complete the construction of the US$2.7 billion Paris-themed casino resort.
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China