Geographic diversity and lower cost structures will be key differentiators when it comes to assessing the credit metrics of Macau’s operators as the earnings recovery lags, Moody’s Investors Service said.
Moody’s said it expects gross gambling revenue for Macau’s mass market, which is the main contributor to profit and cash flow, to be just 30 percent of 2019 levels this year, before improving to 70 percent in 2023.
It doesn’t expect full recovery in mass until 2024 and sees no significant rebound in the VIP sector due to the collapse of the junket market. Moody’s sees VIP at about 5 -10 percent of 2019 levels by 2023/24 due to China’s crackdown on illegal gambling and corruption.
The VIP sector made up 60 percent of the market in 2014, but that had declined to 33 percent in 2021 and is likely to fall further, Moody’s said.
The credit ratings agency warned that “downside risks to market recovery are significant,” due to ongoing travel restrictions, business closures and a further flare up of Covid. In a worst-case scenario, the firm estimates mass GGR will only reach 60 percent of pre-pandemic levels next year and 80 percent the following. This year, it may fall to as low as 25 percent of 2019 levels should the lockdowns drag.
“As a result, credit metrics of Macau-focused operators will remain very weak till 2024 and their ratings will come under heightened pressure,” it said.
The key differentiator when it comes to credit ratings will be geographic exposure. It says MGM Resorts is the most insulated due to strong recovery in its U.S. operations, while SJM Holdings is the most exposed, with no international presence and a high cost base due to the ramp off of its Grand Lisboa Palace property, which opened on the Cotai Strip last year.
Wynn Resorts also benefits from a strong recovery in its Las Vegas and Boston operations, while Las Vegas Sands has support from Marina Bay Sands in Singapore.
Melco Resorts & Entertainment does have the City of Dreams Manila and is opening a property on Cyprus, although Moody’s notes that the Philippines only accounted for a small part of profit prior to Covid.
Moody’s said all of the operators have sufficient liquidity at least over the next 12 months, with manageable debt maturities till end-2024. Among them, the US operators and Melco have stronger buffers. Las Vegas Sands, Wynn Resorts, MGM Resorts and MRE have large cash balances and sizable long-term credit facilities well above what they need to support their cash uses through the end of 2023.
SJM is in the weakest position due to its cash burn, though a recent refinancing should mean it has sufficient funds for at least the next 12 months.
Macau’s casinos were locked down for the second time in two and a half years on July 11th as the city battles its worst outbreak of Covid since the beginning of the pandemic. Residents are only able to leave their houses for essentials such as buying food and medical care. Walking the dog can be considered a criminal offense.
The neighboring Chinese province of Zhuhai has also reimposed mandatory quarantine for anyone coming from Macau of seven days.