Moody’s Investors Service Inc says declining gaming revenues in Macau are credit negative for rated gaming companies in the Melco Crown Entertainment Ltd group, including MCE Finance Ltd (Ba3 positive), Melco Crown (Macau) Ltd (Ba3 positive), and Studio City Finance Ltd (B2 stable).
“A weaker operating environment will make it more challenging for Studio City Finance to ramp up its Studio City project [pictured], which is scheduled to open in mid-2015, and to realise its revenue growth and de-leveraging plan in the next one to two years,” said Moody’s in a note issued in Hong Kong on Tuesday.
Last year Melco Crown parent said that it was increasing the budget for Studio City by 15 percent, to US$2.3 billion.
“Declining gaming revenue will weaken the companies’ revenue and EBITDA [earnings before interest, taxation, depreciation and amortisation] generation, which in turn diminishes their debt-servicing capacity,” said Kaven Tsang, a Moody’s vice president and senior analyst, in Tuesday’s note.
“Nevertheless, MCE Finance’s established operations and strong financial profile will buffer it from a slowing market,” added the analyst.
MCE Finance had cash and deposits of around US$1.3 billion and undrawn banking facilities of US$401 million as of September 30, said Moody’s. That fully covers the firm’s capital expenditure commitments of US$400 million to US$500 million – as estimated by the ratings agency – as well as debt repayments of US$257 million for the coming 12 months.
Macau’s casino regulator, the Gaming Inspection and Coordination Bureau, on January 2 reported that Macau’s gross gaming revenue (GGR) for 2014 fell 2.6 percent year-on-year to MOP351.52 billion (US$44.0 billion). It was the first annual contraction in GGR since records began in their current form in 2005.
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”As the Macau gaming revenue structure is now leaning heavily towards the mass business … once the border fully reopens, the recovery from mass should drive the sector to bounce more swiftly”
Vitaly Umansky, Louis Li and Shirley Yang
Analysts at Sanford C. Bernstein