Fitch Ratings is forecasting SJM Holdings to generate EBITDA of HK$2 billion (US$258 million) at its new Macau integrated resort Grand Lisboa Palace in 2022, rising to HK$3.5 billion (US$450 million) by 2023, as the company begins its long-awaited quest to regain Macau market share.
The HK$39 billion (US$5 billion) Grand Lisboa Palace – SJM’s first property in Macau’s modern day gaming mecca of Cotai – is scheduled to finally open its doors in 1Q21 following a series of setbacks that have delayed launch for well over a year.
And while the timing isn’t ideal given the ongoing impact of COVID-19, with Fitch estimating zero EBITDA through the rest of this year, the agency expects much more from SJM’s latest venture in the near future.
“Fitch believes Grand Lisboa Palace will allow SJM to gain a foothold in Cotai and raise its market share,” it said in a Monday note addressing the news that SJM has proposed a senior notes offer to pay off debt obligations.
“We forecast Grand Lisboa Palace will have EBITDA of HK$2.0 billion with 330 tables by 2022 and HK$3.5 billion with 380 tables by 2023, which will be partially offset by slightly lower EBITDA at its existing properties due to table reallocation and business diverted to Grand Lisboa Palace.
By comparison, “Rivals Wynn Palace, which opened in August 2016, had EBITDA of HK$5.0 billion (US$645 million) with 325 tables in 2019, and MGM Cotai, which opened in February 2018, had EBITDA of HK$2.4 billion (US$310 million) with 259 tables in 2019.”
Fitch on Monday assigned SJM’s proposed notes offer a “BB+” rating, and the company itself a Long-Term Foreign-Currency Issuer Default Rating (IDR) of “BB+” with a Negative Outlook. The ratings, it said, reflect SJM’s historically conservative fiscal position and an expectation that its debt ratios will improve in the coming years, while taking into account the risk of slower than expected recovery from COVID-19.
The agency estimates SJM’s net debt/EBITDAR (excluding working capital cash) reached 7.1x in 2020 but will improve to 3.5x by 2022 and 1.8x by 2023 – buoyed by the absence of any more substantial capex requirements in the short-term.
“SJM’s development pipeline has been focused on Grand Lisboa Palace, which was completed in 2020, and all material outstanding payments will be made by 2021, for which funds have been secured,” Fitch said.
“Thereafter, Fitch forecasts maintenance capex of just HK$500 million (US$64.5 million) a year. Fitch does not expect the company to make any major investments in the foreseeable future as there is no more land available for gaming development in Macau and overseas investments are unlikely.”
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