Ratings agency Fitch has downgraded the Issuer Default Ratings of Las Vegas Sands Corp and its Asia-based subsidiaries Sands China Ltd and Marina Bay Sands Pte Ltd from “BBB-” to “BB+” due to reduced confidence in the recovery trajectory of Macau’s gaming industry.
In a Friday note, Fitch outlined growing concerns around Macau’s strict COVID-19 policies and continued weak visitation, and pointed to its own recently reduced economic forecast for China, which has led to the agency revising down its Macau industry-wide assumptions.
As a result, it said that LVS’ leverage trajectory is “no longer consistent with an investment grade rating.”
“Fitch expects LVS’ gross leverage to remain elevated and inconsistent with investment grade until at least 2025,” the agency explained.
“Gross leverage is forecasted to be 12.7x, 6.8x, and 4.4x in 2022, 2023 and 2024 respectively. Net leverage is slightly better but still inconsistent with investment grade until 2024.
“Longer-term, Fitch believes LVS is willing to manage its balance sheet consistently with investment grade and that the pandemic has not altered its long held conservative financial policies.
“LVS has a solid track record of publicly articulating its leverage policy and adhering to prudent balance sheet management. This includes reducing shareholder returns and debt in 2015 amid deterioration in Macau operations, halting shareholder returns during the pandemic and maintaining its Las Vegas asset sale proceeds as excess liquidity.”
The decision to downgrade LVS is directly linked to Macau’s stalled recovery, with Fitch noting that the ability of operators in Macau to generate cash flows continues to be “materially impacted by governmental COVID-19 policies.”
The agency now anticipates that gross gaming revenues will remain at just 27% of 2019 levels this year, growing to 50% in 2023 and 70% in 2024. Macau-wide GGR in 2019 was MOP292.46 billion (US$36.2 billion), with analysts having until late last year been estimating 2022 revenues closer to 70% of 2019 levels.
