Macau’s proposals outlined on September 14 for changes to the legal framework of its casino industry, are a “credit negative” for companies associated with the Macau sector, says Moody’s Investors Service Inc.
The institution wrote in a note on Friday that the rationale for the Macau government proposals being credit-negative for casino firms was “because the consultation document highlights the government’s intention to strengthen its regulatory scrutiny and supervision over the gaming sector” via steps including oversight of operator dividends, and via a Macau-government appointed delegate system to oversee the operators.
Moody’s stated that, “although the trend is not new, the increasing regulations and constraints on the city’s gaming operators will likely mean that operators will incur higher costs and investments for compliance”.
It further suggested: “Operators would likely have some ability to pass along increased costs to customers to help mitigate the burden.”
Moody’s referred in particular to the operators with Macau exposure that the credit institution covers, namely: Las Vegas Sands Corp (Baa3 negative) parent of Sands China Ltd; Melco Resorts Finance Ltd (Ba2 negative), the financing arm of Macau licensee Melco Resorts and Entertainment Ltd; and MGM Resorts International (Ba3 negative), parent of Macau licensee MGM China Holdings Ltd.
The same also applied to: Macau operator SJM Holdings Limited (Ba1 negative); and Wynn Resorts Finance, LLC (Ba3 negative), financing arm of Wynn Resorts Ltd, which in turn is parent to Macau licensee Wynn Macau Ltd.
Moody’s ‘Baa’ ratings are the lowest level of ‘investment grade’ for financial products. ‘Ba’ ratings are judged to have “speculative elements, and are subject to substantial credit risk”.
The paper, from analysts Sean Hwang, Adam McLaren, John Puchalla and Keun Woo Park, said Moody’s expected the current six Macau operators to be able to stay in the market beyond expiry of the current licences in June 2022. The institution thought there was “a chance that the Macau government may require a one-off lump-sum payment” from each operator, “but the size and timing of such payments remain uncertain.”
It thought risk of what it termed “non-renewal” that might exist, would be “magnified for U.S.[-controlled] operators since uncontrollable geopolitical issues present greater risk”.
