Moody’s Investors Service Inc says that the continued decline in Macau gaming revenue – linked by a range of investment analysts to mainland China’s economic slowdown and the central government’s anti-corruption campaign – is “credit negative” for rated gaming companies.
Moody’s assessment is included in a new report by Kaven Tsang, a vice president and senior analyst, and Billy Wong, an associate analyst, that was announced on Wednesday.
On Monday, the Macau government reported a 38.8 percent year-on-year decline in gross gaming revenue to MOP19.2 billion (US$2.4 billion) in April. It was the 11th consecutive month of decline.
“The decline is credit negative for our rated gaming companies. We expect overall gross gaming revenue to remain weak for the rest of the year, and decline 25 percent to 30 percent year-on-year,” said Mr Tsang.
Lower gaming revenue will weaken the rated companies’ overall revenue and EBITDA (earnings before interest, taxation, depreciation and amortisation) generation, and so diminish their debt-servicing capacity, added Moody’s.
It rates Melco Crown Entertainment Ltd units MCE Finance Ltd (Ba3 positive); Melco Crown (Macau) Ltd (Ba3 positive) and Studio City Finance Ltd (B2 stable).
MCE Finance’s strong financial profile and established operations buffer the company from the slowing Macau gaming market, said Moody’s.
But Studio City Finance – an entity linked to a Melco Crown majority-owned US$3.2-billion new casino venue on Cotai in Macau that is due to open in the third quarter of 2015 – will face challenges in realising its planned revenue growth and deleveraging, suggested the rating agency.
“In addition, the scheduled opening of another integrated resort by Galaxy Entertainment Group Ltd (unrated) will further increase competition,” added the ratings institution, referring to the HKD19.6-billion (US$2.53-billion) Galaxy Macau Phase 2, due to launch on May 27.
Studio City’s emphasis on non-gaming activities and mass-market gaming would partly mitigate those challenges, stated Moody’s.
Macau market weakness “is largely due to the material decline in VIP gaming revenue,” which Moody’s pointed out fell by 42 percent year-on-year in the first quarter of 2015. The ratings agency attributed the drop to the Chinese government continuing its efforts to combat corruption in the public and private sectors.
“The slowing Chinese economy and the high base of comparison for the same period last year also contributed to the decline,” said the rating agency.
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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