The increasing likelihood that mainland China will maintain its zero-COVID policy into the future, couple with China’s slowing economy and uncertainty around concession re-tendering, is set to make capital access increasingly difficult for Macau’s gaming concessionaires in the coming years, according to ratings agency Fitch.
In a Thursday note titled “Macau Gaming Recovery Remains Distant, Despite Recent Travel Easing”, Fitch analysts observed that although refinancing needs for Macau’s six concessionaires are modest until at least 2024, “Capital access for the operators’ Hong Kong-listed subsidiaries, which are the primary debt issuers associated with Macau operations, is likely to remain limited until GGR recovers to levels closer to 2019 and the regulatory overhang from the gaming concessions subsides.
“Regulatory policy uncertainty is adding to the credit profile risk for Macau gaming operators,” they wrote. “Fitch views the likelihood of incumbent concession holders failing to secure a new concession as low, but possible.”
Fitch estimates Macau’s industry-wide GGR will reach just 27% of 2019 levels in 2022, growing to 50% in 2023 and 70% in 2024, however even this moderate recovery trajectory is threatened by China’s COVID-zero policy and the potential for tighter restrictions.
“Slower China economic growth could also negatively affect the gaming recovery, including for the valuable premium mass and higher-end players,” analyts said.
“Fitch revised China’s GDP for 2023 to 2.8% in its September Global Economic Outlook from 3.7% in June, and its 2023 China GDP forecast to 4.5% from 5.3%.”
Likewise, “Seven operators vying for six concessions poses material event risk.
“An existing operator’s concession could not be renewed, weakening the relevant debt-issuing subsidiary’s financial profile. A loss of a gaming concession could result in an immediate multi-notch decline in ratings depending on the circumstances, which Fitch would then assess.
“The possibility of onerous capital commitments also remains a key unknown until the concession tender process is publicly outlined by the government, which could occur in the near term.”
However, “We have grown less concerned over the risk of potentially weaker operating economics given incremental clarity on enacted changes to the existing gaming law published by the Macau government.”
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