Fitch maintains negative watch on operators, downgrades economic recovery
Fitch Ratings has expressed reduced confidence in Macau’s economic recovery as the city’s zero-Covid strategy “continues to constrain the cash-flow generation ability of Macau’s operators.”
Analysts have updated Macau’s gross gaming revenue recovery curve to reflect its performance forecasts for 2022-2024 compared with 2019 levels at -73%, -50% and -30%, respectively.
“The forecasts reflect the risks facing operators including travel restrictions, the potential economic impact of China’s sporadic and large-scale shutdowns on the movement of premium mass and higher-end players, as well as general economic volatility,” the American credit rating agency said in a statement.
The ratings were released last week but predictions may worsen given the current state of the SAR, which is suffering from a new wave of Covid-19 that, according to the government, may be “the worst one” yet.
Meanwhile, Fitch Ratings has downgraded the Issuer Default Ratings of Las Vegas Sands Corp., Sands China, Ltd to BB+ from BBB-.
Fitch Ratings has maintained a Rating Watch Negative (RWN) on all ratings.
According to Fitch Ratings, “LVS’ resultant leverage trajectory is no longer consistent with an investment-grade rating.”
Fitch Ratings has also downgraded SJM Holdings Limited’s (SJMH) Long-Term Foreign-Currency Issuer Default Rating and senior unsecured rating to BB- from BB.
According to the firm, the downgrade reflects its “reduced confidence in the recovery of Macau’s gaming industry as a result of the government’s strict Covid-19 pandemic-related policies, continued weakness in tourism and the delayed ramp up of the newly developed Grand Lisboa Palace (GLP).”
The GLP opened in July 2021, but continues to run at limited capacity.
“SJMH’s leverage trajectory is no longer consistent with its previous rating level following our weaker gross gaming revenue forecast for Macau,” Fitch Ratings said in a statement.
The agency firm believes that SJM’s concession re-bidding procedure will be pragmatic. However, the RWN reflects the damaging credit implications of a failure to secure a new gaming concession or more onerous economic licensing conditions.
“We expect gross leverage to remain well above our downgrade threshold of 4.5 till 2024, based on our updated recovery curve. However, we believe there is room for leverage to improve beyond this period,” it added.
The firm also believes that the challenging operating environment may encourage more satellite casino owners to cease operations when their contracts expire this month. The agency estimates staffing costs could increase by up to HKD600 million in the second half of 2022, as SJM brings gaming staff onto its payroll.
Meanwhile, amid the outbreak, Secretary Lei Wai Nong has emphasized his confidence in the second reading of the gaming bill that was scheduled this week, although he highlighted that the professional judgment of the Health Bureau (SSM) must be observed and followed.
