Fitch says Macau tourism and GGR recovery helps with casino operators’ deleveraging

The rating agency recently revised upwards its outlook on SJM’s Long-Term Foreign-Currency Issuer Default Rating (IDR) and ratings on Las Vegas Sands Corp.. It has also assigned a first-time ‘BB-‘ IDR to Wynn Macau, to reflect ‘the strong rebound in the Macao’s gaming market’.
 
In a Wednesday update, Fitch highlighted their expectation of continued recovery in inbound tourism and gaming revenue in Macau, which is expected to help the issuer reduce its leverage.
 
Fitch predicts an improvement in Macau’s gaming industry in 2024, bolstered by a steady recovery in inbound tourism, as reflected during the recent Chinese New Year holiday period.

The agency expects the mass-market segment to contribute to this positive trend.
 
Despite the positive developments, Fitch acknowledges that the upside potential in the gaming operators’ ratings will be constrained by their elevated leverage metrics, as the process of deleveraging is expected to take time for some operators.

Analysts said that the surge in tourist arrivals had reinforced their expectation of a recovery in Macau’s gaming sector for the rest of the year, despite the economic headwinds facing China.
 
“This resilience is in part due to a shift in Chinese consumer preferences towards service-oriented sectors, like domestic tourism and entertainment,” the analysts said. 
 
This influx of tourists is likely to boost casinos’ gross gaming revenue, with the mass-market segment already registering revenues in the fourth quarter of 2023 that exceeded 2019 levels by 4 per cent.
 
However, the recovery of VIP segment is on a slower path and is unlikely to return to pre-pandemic revenue levels in the near future, attributed to recent years’ regulatory tightening by China of gaming tourism and the broader economic challenges that China is undergoing.
 
Fitch’s analysts said that the gaming tourism recovery underpinned their expectation of strong economic growth for Macau this year, which was previously set at 15 per cent.

By Therese Tu