Fitch Ratings Inc forecasts that the MGM Cotai casino resort (pictured), in Macau’s Cotai district, will generate nearly US$250 million in incremental earnings before interest, taxation, depreciation and amortisation (EBITDA) “once fully ramped”. The forecast was included in a Monday report on the outlook of U.S.-based casino operator MGM Resorts International, the parent of Macau gaming firm MGM China Holdings Ltd.
The ratings agency said it expected “low single-digit declines” in Macau gross gaming revenues market-wide for 2019. “MGM will gain market share as MGM Cotai continues to ramp up, following the introduction of VIP operations in late 2018,” it stated.
It added: “Fitch’s favourable long-term view on Macau is supported by an expanding middle class in China and infrastructure development in and around Macau.”
In July, MGM China said its VIP offer in Cotai spurred a 41-percent growth in the company’s second-quarter EBITDA. The firm said its Cotai property recorded an adjusted EBITDA of about HKD487.5 million (US$62.2 million) in the second quarter, up from HKD196.3 million in the corresponding period last year.
Grant Bowie, MGM China chief executive, said at the time: “We are excited to see the ramping up of MGM Cotai. The recent opening of The Mansion offers exclusive luxury to the next level and helps us be better positioned in the premium segment.”
In Monday’s report, Fitch said it expected the Macau government “to take a pragmatic approach” regarding extending the concessions of the city’s current six gaming operators beyond 2022.
“However, there is risk of adverse events or conditions such as a new concessionaire being introduced or new fees, taxes or development requirements being imposed,” it added.
In Monday’s report, Fitch affirmed the issuer default ratings (IDR) of MGM Resorts and MGM China at ‘BB’. The ratings agency added that the outlook for the group is stable.
The report followed MGM Resorts’ announcement earlier this month of a plan to sell for US$825 million of its Circus Circus Las Vegas venue and its decision to “monetise” for US$4.2 billion in cash its interest in Bellagio, another of its properties in the Nevada gaming hub.
MGM Resorts said it plans to use the proceeds to: strengthen its balance sheet; return capital to shareholders; and support its sports betting and Japan development initiatives.
Fitch said MGM Resorts’ liquidity “is solid and is set to improve further” as annual discretionary free-cash-flow “grows in excess of US$1 billion by 2020”. “Per Fitch’s base case, the primary use of the free-cash-flow will be to support continued ramp up in shareholder returns,” it added.
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“We see that basically the ‘golden’ periods [for Macau's casino industry] are all concentrated in the second half of this year”
Lei Wai Nong
Macau’s Secretary for Economy and Finance