Moody’s report | Gaming revenue decline is credit negative for rated operators

Moody’s Investors Service says that the continued decline in Macau gaming revenue – a result of China’s economic slowdown and the government’s anti-corruption campaign – is credit negative for rated gaming companies.
Moody’s analysis is included in its just-published report “Gaming –
Macau: Weak Gaming Revenue Is Credit Negative for Rated Companies,” by Kaven Tsang, a Moody’s Vice President – Senior Analyst and Billy Wong, a Moody’s Associate Analyst.
On 4 May, the Gaming Inspection and Coordination Bureau of Macau reported a 38.8 pct year-on-
year decline in gross gaming revenue to MOP19.2 billion in April, the eleventh consecutive month of decline.
“The decline is credit negative for our rated gaming companies. We expect overall gross gaming revenue to remain weak for the rest of the year, and decline 25 pct to 30 pct year on year,” says Tsang.
Lower gaming revenue will weaken the companies’ – MCE Finance Limited (Ba3 positive), Melco Crown (Macau) Limited (Ba3 positive) and Studio City Finance Limited (B2 stable) – overall revenue and EBITDA generation, and so diminish their debt-servicing capacity, says Moody’s.
The decline is largely due to the material decline in VIP gaming revenue, which plummeted by 42 pct year on year in the first quarter of 2015, as the Chinese government continues its efforts to combat corruption. The slowing Chinese economy and the high base of comparison for the same period last year also contributed to the decline, says the rating agency.
Moody’s notes that the gaming companies differ in their resilience to the weaker operating environment.
MCE Finance’s strong financial profile and established operations buffer the company from the slowing Macau gaming market, but Studio City will face challenges in realizing its planned revenue growth and deleveraging, says Moody’s. In addition, the scheduled opening of another integrated resort by Galaxy Entertainment Group Limited (unrated) will further increase competition.
Still, Studio City’s emphasis on non-gaming activities and mass-market gaming will partly mitigate the challenges, says Moody’s.
Moody’s Investors Service Press Release