Macau Concessionaires Flirt with Credit Upgrades

Posted on: February 21, 2023, 02:20h. 

Last updated on: February 21, 2023, 02:56h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

No debt issued by Macau concessionaires currently carries investment-grade ratings and the credit outlook across the group is widely viewed as “negative” by ratings agencies, but it is possible that the operators could be drawing closer to credit upgrades.

Using data from Fitch Ratings, Moody’s Investors Service, and S&P Global Ratings — the three major ratings agencies — Bloomberg Intelligence examined the debt profiles of the six Macau operators. The research firm noted that some of those companies may head to debt markets in the second quarter, but that it’s unlikely any face further downgrades this year.

We now expect the leverage of most gaming issuers could fall to below their respective downgrade thresholds, from the end of 2023, which means there is a chance that the ‘negative’ rating outlook would be lifted,” noted Cecilia Chan, credit analyst at Bloomberg Intelligence.

The six Macau concessionaires are Galaxy Entertainment, Melco Resorts & Entertainment, MGM China, Sands China, SJM Holdings, and Wynn Macau.

Appetite for Macau Concessionaires’ Debt Could Improve

Amid China’s harsh travel restrictions that hampered Macau’s ability to rebound from the coronavirus pandemic, global investors’ appetite for bonds issued by the gaming companies waned.

With China’s COVID-19 protocols now relaxed, the special administrative region’s (SAR) gaming industry is bouncing back, potentially setting the stage for operators to head to debt markets later this year without risking damage to credit ratings.

“So with improving industry fundamentals and market sentiment toward the Macau gaming sector, we expect we will see more debt market tapping from the second quarter. This could lead to repricing of the existing bonds curve,” added Chan.

Good News for Macau Concessionaires

More flexible debt markets could prove pivotal for Macau concessionaires because under the SAR’s new gaming laws, operators must spend big on nongaming amenities over the next decade. Those are capital-intensive efforts and most of these companies don’t have the cash on hand to meet the government spending mandate.

Fortunately, China’s better-than-expected reopening is spurring hopes that Macau’s gross gaming revenue (GGR) could top expectations this year. Bloomberg Intelligence forecast 2023 GGR will be 52% of pre-pandemic levels, up from a prior outlook of 42%.

“This is also higher than the current market consensus and the change is mainly due to the fast reopening of mainland China,” observed analyst Angela Hanlee.

That forecast could be supported by strength in the premium mass segment, which is showing overt strength since the start of this year.