S &P Global Ratings has downgraded the issuer credit rating for Las Vegas Sands (LVS) and Sands China, due to a slower recovery unfolding for Macau’s gaming sector amid rising Omicron cases and travel restrictions.
S&P now rates the company BB+, down from BBB-, as it expects LVS’ leverage to reach the ratio of about 7x at the end of this year, which stands at about the 4x downgrade threshold at the previous rating level.
“We revised our base-case forecast for Macau because we believe that the resumption of travel between Macau and mainland China in 2022 will be slower than we initially anticipated amid rising Omicron cases and tightening junket activity,” the firm said in a statement.
“We believe the mass gaming segment will recover over the long term, given China’s growing middle class’ high propensity to game, improving infrastructure between mainland China and Macau and expanding hotel supply,” it added.
However, the firm clarified that the predictability of the recovery timeline is “less certain because it is difficult to assess whether China will maintain its policies for zero tolerance of Covid-19 throughout the pandemic’s third year.”
The Omicron outbreak globally is leading to tighter restrictions on international travel, hampering economic recovery.
S&P has forecasted that the city’s gross gaming revenue (GGR) is set to recover up to only 40% of the 2019 level. This is far below the previous forecast of up to 70%.
The brokerage JP Morgan had earlier said that it would not attempt to forecast the city’s gaming recovery for 2022, following uncertainties amid the ongoing Covid-19 crisis and the subsequent economic fallout and strict border measures.
The analysts admitted that they are less confident in their numbers than they were a year ago, noting that the investment bank had modeled that in 2021, mass and VIP GGR would recover to 75% and 35% of 2019 levels respectively.
