Macau Scrapping Mainland Quarantine Policy Credit Catalyst for Operators, Says Moody’s

Posted on: July 16, 2020, 12:04h. 

Last updated on: July 16, 2020, 03:11h.

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

On Wednesday, travel between Guangdong province and Macau got a little easier with the removal of 14-day coronavirus quarantine policies. It’s a move that could firm the credit ratings of the gaming hub’s concessionaires, according to Moody’s Investors Service.

Macau casinos are about to get busier thanks to looser travel with Guangdong and that could be credit positive, says Moody’s. (Image: Bloomberg)

Earlier this week, shares of Macau operators — including Las Vegas Sands (NYSE:LVS), Melco Resorts & Entertainment (NASDAQ:MLCO), and Wynn Resorts (NASDAQ:WYNN), among others — rallied on the Guangdong news. The province is the largest in mainland China and accounted for 45 percent of the visits to Macau last year.

The development is credit positive for gaming companies with operations in Macau SAR because Chinese tourists accounted for around 71 percent of tourist arrivals to Macau SAR in 2019,” said Moody’s in its note. “They also accounted for a high percentage of Macau operators’ gaming revenue in our estimate.”

Combined, mainland China, Hong Kong, and Taiwan contributed 91 percent of Macau visits last year. Because of a recent resurgence in coronavirus cases in Hong Kong, that special administrative region (SAR) continues its quarantine policy for travelers moving between there and the gaming hub.

Gradual, but Improvement Nonetheless

Gross gaming revenue (GGR) in the world’s largest casino center is being punished this year by the COVID-19 pandemic. Macau concessionaires shuttered gaming venues for 15 days in February. But tourists have mostly remained at bay because of reluctance to travel amid the pandemic.

In part, that explains the enthusiasm for Macau equities on the back of the Guangdong news. The province is the mainland region closest to the gaming hub, meaning many potential gamblers don’t need to hop on a plane to get to Macau. Rather, they visit the casino center via the Hong Kong–Zhuhai–Macau Bridge.

“We expect the removal of the quarantine requirement will lead to a gradual rebound in Macau’s gross gaming revenue because of the likely pent-up demand for tourism for people from mainland China,” said Moody’s. “The city’s GGR fell 77 percent in the first half of 2020 — with a 97 percent drop in June — because of travel restrictions in place as a result of the coronavirus outbreak.”

Some Specifics

Moody’s didn’t directly mention many of the Macau operators that could potentially derive positive credit impact from the loosening of travel controls with Guangdong. But the research firm pointed out that the region of the SAR is the largest in the world when it comes to GGR, and Melco Resorts generated about 87 percent of its turnover there last year.

Moody’s has a Ba2 rating on Melco debt with a “negative” outlook. The rating agency issues credit grades on nine Asia-Pacific concessionaires, all with “negative” outlooks.

The highest-rated operator in Moody’s Asia-Pacific coverage universe is Genting Singapore at A3. That company doesn’t have Macau operations. The US-based gaming company with the highest Moody’s grade is Las Vegas Sands at Baa3.

Moody’s added that it will be beyond 2021 when Macau operators’ financial metrics return to 2019 levels due to rising debt loads and what’s likely to be a lengthy revenue recovery period.