Fitch downgrades SJM rating to ‘BB’ due to loan, concession uncertainty

Fitch Ratings has downgraded SJM Holdings Limited’s rating from “BB+” to “BB,” the agency announced in a statement, adding that the rating remains on Rating Watch Negative (RWN).

The downgrade was explained by the company’s apparent difficulties in obtaining a new HKD19 billion long-term syndicated loan facility to repay existing loans due at the end of this month.

According to Fitch, the process of obtaining the loan is happening “slower than we expected,” noting that nevertheless “most banks have agreed to extend the existing loans by a year.”

Uncertainty regarding SJM’s gaming concession also contributed to the lowered rating. Current gaming license concessions are due to expire on June 26, and it is not yet clear how long they will be extended prior to the tender for new licenses. The government hopes to launch the tender process as soon as the new gaming law, currently in the hands of lawmakers at the Legislative Assembly, is finally approved.

The reference to Rating Watch Negative reflects the potential for a potential downgrade if SJM cannot gain the security of long-term capital flow, or if it fails to secure a new gaming concession or is encumbered by more economically-onerous licensing conditions. Another reason that could justify a potential further downgrade of the company would be a lower-than-expected recovery in terms of gaming revenues.

Covid-19-related restrictions at borders have been slowing down the economy of Macau and its main driver – the gaming industry – since early 2020.

Although borders have remained open to the mainland, Macau’s main market (by quantity), continued delays in the resumption of border activity between Macau and the neighboring region of Hong Kong have been mentioned by experts as a decisive constraining factor for the resumption of normal casino activities and other related economic activities such as the hospitality industry.