Macau casino gross gaming revenue (GGR) for 2022 is likely only to be “60 percent to 70 percent” of 2019′s pre-Covid 19 performance, with recovery to pre-pandemic levels not until 2023 at the earliest, said analysts at Standard & Poor’s Global Ratings in a Thursday online presentation.
China’s zero-tolerance policy on Covid-19 was likely to persist into early 2022, which could “create volatility” for Macau’s gaming market recovery, said Aras Poon, an associate director at the ratings house.
Further travel easing between Macau and mainland China might begin “some time in 2022”, he added.
Macau’s GGR was “likely stay weak next two quarters, and pick up more meaningfully from the second half of 2022,” suggested Mr Poon.
This represented “at least 12 months’ delay” to the rating house’s previous forecast date for full recovery, stated the analyst.
“It means leverage [for gaming firms] will likely remain high in 2022,” said Mr Poon.
S&P Global’s base case now assumes Macau’s 2022 mass GGR to reach “around 70 percent to 80 percent” of 2019 levels, and VIP GGR to be around “40 percent to 50 percent” of 2019 levels.
Within the mass gaming segment, the ratings agency assumes the recovery in so-called premium mass will outpace that of the base mass segment.
S&P Global assumes the mainland China authorities will not want outbound travel to “increase too quickly” as transmission of Covid-19 remains a risk.
The institution expected the VIP segment to face further “challenges”.
These included, said Mr Poon: controls on capital moving out of the mainland; stricter control of overseas gambling by Chinese citizens; constraints on credit available for VIP players via junkets; weakness in China’s property market creating limits on liquidity for wealthy Chinese; and the pursuit of China’s public policy of “common prosperity”, which eschews conspicuous consumer spending.
“One positive note is that VIP segment contributes only 10 percent of the sector EBITDA [earnings before interest, taxation, depreciation and amortisation],” said Mr Poon during the presentation.
Structural challenges to VIP play might also have some overlap what the higher end of mass play, cautioned Melissa Long, S&P Global director of gaming and cruise lines, during the presentation.
Macau’s proposed amendment of its gaming law does “heighten policy risks” for the sector, Ms Long remarked. The Macau authorities have flagged previously that revamp of the law would be needed ahead of the anticipated new public tender for gaming rights associated with the June 2022 expiry of the six current licences.
S&P Global Ratings assumes none of Macau’s six casino concessionaires would lose their gaming licences during the rebidding process; though it expected that the sub-concession system might come to an end.
The ratings agency also did not expect the Macau government to grant more than six further licences, whatever happens after June next year, given Macau’s “increasing policy emphasis on stability”, suggested Ms Long in the Thursday presentation.
Future Macau gaming rights could come with conditions not seen in the initial liberalisation at the turn of the century. Such conditions might have the effect either of increasing a gaming operator’s leverage ratio, or reducing its profitability, S&P Global suggested.
There could be stipulations of fresh capital investment in non-gaming amenities; enhanced benefits and safeguards for employees; and or, a premium payable in advance, as a condition of licence renewal.
S&P Global has issued so far this year in aggregate, five ratings actions on entities associated with Macau gaming.
The institution respecitively lowered ratings on Melco Resorts (Macau) Ltd, Studio City Co Ltd and Wynn Resorts Ltd in October due to the “slow recovery” seen in Macau’s gaming revenue.
MGM Resorts International – the United States-based parent of Macau operator MGM China Holdings Ltd – was also downgraded by the agency in March and October respectively, due to its level of leveraging in the U.S.
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