SJM, LVS downgraded due to reduced confidence in Macau recovery: Fitch

Sands China, Macau, the venetian

SJM Holdings and Las Vegas Sands’ credit ratings have been cut by Fitch, which said it has reduced confidence in the Macau market’s recovery.

The ratings agency said the continued adherence to a zero-Covid policy, in both Macau and Mainland China, is constraining cash-flow generation at the Macau operators. It said is had a low degree of confidence as to when the policies may be relaxed.

As a result it has reduced its projections for Macau’s gross gambling revenue this year to be 73 percent below pre-pandemic levels. That may improve to 50 percent in 2023 and 30 percent in 2024.

In such a revenue scenario, Fitch said that Las Vegas Sands’ leverage trajectory is no longer consistent with an investment-grade rating. 

The issuer default rating of LVS, Sands China and Marina Bay Sands in Singapore was reduced to BB+ from BBB-. The ratings remain on credit watch negative. 

SJM was cut to BB- from BB

Fitch defines BB ratings as indicating an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time. However, business or financial flexibility exists that supports the servicing of financial commitments.

SJM is also on ratings watch negative. A further cut would take it to the highly speculative category.

The ratings agency has kept the companies on negative watch due to the uncertainties about the concession renewal process. It says there is more clarity following the publication of the amended gaming law and although it does expect all six to win back their concessions, it can’t be ruled out that one may not. 

The greater uncertainty comes over the government requirements for the tender, which may include onerous commitments of further capital investment.

The concessions were due to expire at the end of June, but have been extended by a further six months to allow time for the re-tender process. The gaming law revisions have now been completed and the government is expected to present requirements for the bids in the near term.

In the longer term, Fitch said it’s confident that LVS is committed to managing its balance sheet in a way that is consistent with an investment grade rating.

“LVS has a solid track record of publicly articulating its leverage policy and adhering to prudent balance sheet management. This includes reducing shareholder returns and debt in 2015 amid deterioration in Macau operations, halting shareholder returns during the pandemic, and maintaining its Las Vegas asset sale proceeds as excess liquidity,” it said.