Fitch Ratings Inc has put the parent groups of three Macau casino operators on “rating watch negative” due to “Macau regulatory uncertainty”.
Fitch added that lack of clarity regarding the speed of recovery for the volume of mainland China tourists to Macau amid the Covid-19 pandemic was also a factor in its assessments.
The three Friday announcements were for respectively Las Vegas Sands Corp, parent of Sands China Ltd; MGM Resorts International, parent of MGM China Holdings Ltd; and SJM Holdings Ltd.
The ratings house said that nonetheless it expected arrangements to be “pragmatic” for the period after June 2022, when the six current Macau casino operating agreements expire. Fitch added it thought all three brands covered by its respective memos would “continue operating in Macau in the long-term”.
The ‘rating watch negative’ decision was to reflect that either “failure to secure a new gaming concession or more onerous economic licensing conditions” could have a “material negative credit impact”.
In the case of Las Vegas Sands, that could mean its business or financial profile might become “no longer consistent with investment grade” in terms of rating. The group currently has a rating of ‘BBB-’, the lowest level within the so-called ‘investment grade’ bracket.
Fitch said MGM Resorts’ domestic credit profile remained consistent with a ‘BB-’ issuer default rating, aided by its “essentially fully-recovered U.S. operations”. Fitch added that Macau contributed a smaller percentage of annual cash flows to the broader MGM enterprise relative to peers, at “about 20 percent”.
The ratings house said SJM Holdings “remains on track” to refinance its existing banking loans, which will mature at the end of February 2022, with a new HKD19.0 billion (US$2.44 billion) loan facility.
“This should leave the company with around HKD7.0-billion of undrawn facilities after repaying existing bank loans of around HKD11.0 billion as at 30 September 2021, and the company’s liquidity remains strong,” said Fitch.
Tourist market recovery
Fitch’s assumption that 2023 Macau industry revenues would reach 90 percent of 2019 levels “largely hinges on a return to more normalised” visitor volume.
“The longer operations and cashflows remain depressed (e.g. government policy responses to current and future variants), the more maintenance of current credit profiles will depend on issuers taking offsetting actions,” stated Fitch.
In the case of Las Vegas Sands, it is 70 percent owner of Sands China Ltd, the Macau operation, and also controls Marina Bay Sands Pte Ltd, which runs the Marina Bay Sands gaming resort, one half of Singapore’s casino duopoly.
Fitch stated in its Friday note regarding Las Vegas Sands’ exposure to the Macau market, and what will happen regarding gaming rights there after June: “Near-term credit risk has increased with limited visibility into the rebidding procedures, how the future regulatory and operating environment will impact cash flows and leverage, and the likelihood and consequences of incumbent operators’ ability to secure a new gaming concession.”
In September, the Macau government issued a consultation paper on proposals for a new regulatory framework for the Macau gaming industry.
Fitch’s note did not mention the detention late last month of Alvin Chau Cheok Wa, founder of the Suncity Group of VIP gambling junkets, and the widely-reported possibility that as part of the fallout from that, the entire Macau junket sector might shut down.
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