Ratings agency Fitch has placed the ratings of Macau concessionaires Las Vegas Sands, MGM Resorts and SJM Holdings, as well as their associated subsidiaries, on Rating Watch Negative (RWN) due to uncertainty around the timing and procedures of license re-tendering.
The agency has also expressed concern over Macau’s COVID-19 recovery given China’s “zero-COVID” policy, which it expects will result in another challenging year for gaming revenues in 2022.
The RWN applies to LVS group entities Las Vegas Sands Corp, Sands China Ltd and Marina Bay Sands Pte Ltd, to MGM Resorts International and to SJM’s Long-Term Foreign-Currency Issuer Default and senior unsecured notes ratings of “BB+”.
In separate notes published Monday on each of the three concessionaires, Fitch said the RWN “reflects the material near-term regulatory uncertainty related to [each] gaming concession in Macau, whose 20-year term is set to expire on 26 June 2022. Near-term credit risk has increased with limited visibility into the re-bidding procedure, how the future regulatory and operating environment will impact cash flows and leverage, and the likelihood of incumbent operators’ ability to secure new gaming concessions.”
While Fitch analysts said they expect LVS, MGM and SJM will continue operating in Macau in the long-term, “the RWN indicates the material negative credit impact that failure to secure a new gaming concession or more onerous economic licensing conditions could have.
“Fitch views the possibility of incumbent concession holders failing to secure new concessions as low, although the risk cannot be ignored,” they write. “The operators have invested billions, are large local employers and critical government tax payers, and have supported the local and mainland government’s broader goals, such as the Greater Bay Area Initiative. The new concessions could also come with weaker operating economics, onerous capital commitments and reduced ability to upstream cash to parents, but this is difficult to predict until regulators provide greater clarity.”
Fitch also said it is keeping a close eye on China’s COVID policies, having previously estimated a return to 90% of 2019 GGR levels by 2023, with this estimate dependent upon a return to more normalized visitor levels sooner rather than later.
However, on an individual basis, the agency expressed confidence in all three companies, noting that SJM – which is tipped to refinance HK$11 billion in existing bank loans by February – maintains strong liquidity while LVS should be able to reduce net leverage to the 2x range beginning in 2023 assuming shareholder returns do not resume until then and that payout relative to cash flow is consistent with pre-pandemic levels.
In the extreme scenario of MGM China failing to maintain its Macau operations, Fitch said it still believes MGM Resorts’ domestic credit profile is consistent with a “BB-“ IDR, aided by its essentially fully recovered US operations and the fact that Macau makes up a smaller percentage of annual cash flows to the broader MGM enterprise relative to peers, at about 20%.
“In the longer term, Fitch believes that the Macau gaming industry remains attractive, supported by the expanding middle class in China and the development of infrastructure in and around Macau,” it said.
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