Las Vegas Sands Pulled From Fitch Ratings Watch as Macau Renewal Risk Ends

Posted on: December 23, 2022, 02:50h. 

Last updated on: December 23, 2022, 03:10h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Las Vegas Sands (NYSE:LVS) still sports a junk credit grade of “BB+” from Fitch Ratings. But the research firm pulled the casino operator from its rating watch negative list following recent renewal of the operator’s Macau gaming license.

Las Vegas Sands
The Parisian Macau. Fitch sees some positive signs for operator Las Vegas Sands. (Image: YouTube)

The ratings agency still has a negative outlook on Sands and operating units Sands China, Ltd. (SCL), and Marina Bay Sands Pte. Ltd (MBS), citing Macau visitation recovery risk. On the brighter side, Fitch notes the casino giant can support rising leverage due to a strong balance sheet.

Fitch’s forecast continues to result in LVS regaining ‘BB+’ gross leverage metrics by 2024, but net leverage metrics are stronger and consistent with a ‘BB+’ rating beginning in 2023,” according to the research firm.

While LVS sports a junk credit rating, as is the case with most of the gaming industry, its shares are up 23.59% — good for one of the best showings among casino stocks, as well as sharp out-performance of broader equity benchmarks.

Macau Still Pivotal to Las Vegas Sands Fortunes

Marina Bay Sands, which is one of just two integrated resorts in Singapore, supported Sands’ strong equity performance this year. That’s as the operator contended with ongoing coronavirus restrictions in Macau. Alone, MBS represents close to half of Sands’ market capitalization.

Still, as the largest operator in the special administrative region (SAR), LVS remains very much a Macau story. Fortunately, that risk is abating. Not only was Sands China’s gaming license there renewed for 10 years, capital mandates and required investments are at levels Sands can afford, and China is finally relaxing its zero-COVID policy.

“Fitch believes pent-up demand is possible for gaming and leisure-oriented activities following nearly three years of pandemic restrictions for Mainland gamblers in China,” said the ratings agency. “Other global gaming jurisdictions experienced fast recoveries to pre-pandemic levels of demand once travel restrictions were lifted, often less than one year (e.g. Las Vegas in 2021, Singapore expected in 2023).”

While China relaxing travel policies pertaining to Hong Kong and Macau is encouraging, it could be months before the move pays dividends for Macau operators.

Volatility Expected

Market observers widely expect that Macau stocks could deliver some upside ahead of a more earnest recovery in gross gaming revenue (GGR) in 2024. But there could be near-term volatility as China eases the zero-COVID policy.

Because of the country being far behind when it comes to herd immunity, forecasts indicate China could post as many as 5,000 new coronavirus cases per day in the coming months. It could also endure perhaps as many 1 million deaths next year.

“As the virus circulates more widely, a temporary period of economic volatility may be unavoidable, given China’s limited levels of naturally acquired immunity, comparatively low vaccine booster coverage for the elderly, and the experience of other economies that have pursued a similar path,” concluded Fitch.

The ratings agency forecasts leverage of 6.9x next year for Sands before a material decline to 4.4x in 2024 arrives.