Macau Retains ‘AA’ Credit Rating, Fitch Sees Recovery Gaining Speed

Posted on: April 8, 2022, 11:33h. 

Last updated on: April 8, 2022, 01:26h.

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

Macau’s rebound is still slow-moving at best. But the special administrative region’s (SAR) strong credit grade remains intact with Fitch Ratings, affirming the world’s largest casino center at “AA” with a “stable” outlook.

Macau credit
The Cotai Strip in Macau, seen above. Fitch Ratings is optimistic about economic recovery there. (Image: Bloomberg)

Fitch’s view on the only Chinese territory where legal gambling is encouraging. But it arrives as the SAR’s once lucrative junket business is all but dead and as shares of the six concessionaires are extending lengthy slumps. Still, the ratings agency sees the potential for significant upside to Macau’s 2022 GDP growth.

Fitch forecasts Macau’s economy will expand by 19% in 2022 based on our assumption that gaming revenue will recover to about 44% of its pre-pandemic level,” said the research firm.

Interestingly, Fitch’s call on Macau arrives soon after rival ratings agencies downgraded some of SAR’s operators. In February, Standard & Poor’s  lowered its grades on Las Vegas Sands (NYSE:LVS) and the operator’s Sands China unit to “BB+,” or one notch into junk territory, from “BBB-.” Last week, Moody’s Investors Service pared its grade on MGM Resorts International’s (NYSE:MGM) credit rating to “B1” from “Ba3.” That company owns 56% of MGM China.

China Policy Hindering Macau Recovery

Other casino markets are moving past the headwinds created two years ago by the coronavirus pandemic. But Macau isn’t in that camp.

Integrated resorts there are open, but getting tourists to the SAR is a different matter. The Chinese Communist Party (CCP) has a zero-tolerance stance on COVID-19, and amid a recent spike in cases in Shanghai, the CCP is employing draconian lockdown measures, making one of Asia’s largest cities look like it did in April 2020.

Citizens there can’t even leave their homes to go grocery shopping, let alone hop on a plane to go gambling in Macau.

“We expect the territory to maintain its ‘zero-Covid’ strategy in line with mainland China – the dominant tourism source market – to prioritise the return of mainland tourists,” adds Fitch. “The recent Covid-19 Omicron variant flare-ups in parts of mainland China and precautionary travel restrictions point to a more volatile near-term visitation recovery trajectory.”

Optimistic About Second Half Recovery

Fitch is forecasting a rebound in gaming activity in the second half of this year. That’s music to the ears of Macau policymakers and the concessionaires themselves because they’re burning through large amounts of cash to simply keep casino doors open.

“The gaming tourism recovery should pick up momentum in 2H22, underpinned by a gradual resumption of inbound tourism from mainland China. We project growth will accelerate to 24% in 2023, as visitation normalizes further,” says the research firm.

That forecast largely hinges on either COVID-19 case counts decreasing in mainland China or the CCP realizing its zero tolerance policy is a futile endeavor.