It May Take Some Time for Macau Casino Operators to Reduce Debts

Published date: February 22, 2024, 09:32.

Last update date: February 22, 2024, 09:32.

Macau casino operators should benefit from rising gross gaming revenue (GGR) this year as tourism to the gaming region from mainland China increases, but the process of reducing debt may take some time.

Wynn Macau, bribery, Oh Luen, 吴联, Li Kin-wang
Wynn Macau casino hotel. It may take some time for Macau operators to reduce debt. (Image: Bloomberg)

That’s according to Fitch Ratings, which says further credit upgrades for concessionaires are unlikely in the near term. Earlier this month, the ratings agency upgraded Sands China’s parent company, Las Vegas Sands (NYSE: LVS), to its lowest investment rating of “BBB-“. Just a few days ago, Fitch reaffirmed Wynn Macau’s parent company, Wynn Resorts (NASDAQ: WYNN), at ‘BB-‘.

“The increase in visitation and gaming revenues is likely to help Fitch-rated casino operators with a presence in Macao reduce their debt levels,” the research firm observed. “However, the upside potential in their ratings is likely to be offset by high leverage metrics, as reducing leverage despite improvements will take time for some operators.” is limited.”

The recent eight-day Chinese New Year holiday, which lasted one day longer than usual, has been a boon for Macau casino companies, as visitation during the period reached 1.4 million, surpassing the 1.2 million seen in 2019, according to the Macau State Tourism Office ( MTGO ).

Macau Debt Necessary Evil

Macau operators have had to take on more than $20 billion to stay afloat during the coronavirus outbreak, with gaming venues in the special administrative region (SAR) not reopening in earnest until early 2023.

That has delayed the franchisees’ ability to take debt-reduction steps, but analysts and bondholders appear to be at peace with that because issuers are widely expected to be able to handle a number of upcoming maturities this year and in 2025.

Additionally, while Macau stocks remain stagnant, there is a strong appetite among global bond investors for debt issued by Macau casino operators, signaling that buyers believe the risk of default is minimal despite the high-yield ratings of these bonds.

“We do not see significant near-term upside potential for the issuers’ ratings, as reflected by their Stable Outlooks,” Fitch added. “SJM Holdings’ leverage metric in particular remains high and will likely only fall to rating thresholds in 2026 in our view. “There is also a risk that the recovery in Macao’s gaming revenues could slow due to possible policies to tighten capital outflow from mainland China.”

VIP Market Still Stagnant

The recovery in Macau was led by mass and world-class mass players; VIP action, on the other hand, is still stagnant due to fragmented show business.

“However, the VIP segment is on a slower path to recovery and is unlikely to return to pre-pandemic revenue levels in the near future. “This slow recovery in the VIP segment is attributable to the tightening of regulations on China’s treatment of gaming tourism in recent years and the broader economic challenges facing China,” Fitch concluded.

Latest data shows that MGM China and Wynn Macau, which operate a total of four venues here, gained market share in the fourth quarter, while leaders Galaxy Entertainment and Sands China retained modest share.

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