Moody’s Investors Service said this week that it has affirmed SJM Holdings Limited’s Ba3 corporate family rating (CFR) and the B1 rating on the backed senior unsecured bonds issued by Champion Path Holdings Limited and guaranteed by SJM, with the rating outlook remaining negative.
According to a ratings update, the rating affirmation represents SJM’s “very high leverage” and increased debt accrued during the COVID-19 pandemic – tempered by the expectation of a return to profitability in 2023.
“SJM’s financial leverage will improve significantly over the next 2-3 years as Macau’s … gaming market will recover strongly after China recently lifted its pandemic-related travel restrictions,” said Moody’s Vice President and Senior Credit Officer, Gloria Tsuen.
“Nonetheless, SJM’s financial leverage will remain elevated over the next 12-18 months, as the recovery is still in its early stages, and it will take time to repair SJM’s capital structure, which weakened materially during the pandemic. This consideration drives the negative outlook.”
Moody’s said SJM will reverse the HK$3 billion (US$382 million) Adjusted EBITDA loss it recorded in 2022, with 2023 Adjusted EBITDA estimated to reach HK$1 billion (US$127 million) in 2023 climbing to HK$4 billion (US$510 million) in 2024.
This, it added, is based on the assumption Macau’s mass market GGR will return to about 75% of pre-COVID levels in 2023 and fully recover in 2024, although the VIP segment GGR will remain “anaemic” in both years due tight regulatory restrictions on the operations of junkets that previously drove the VIP business.
“SJM’s new Grand Lisboa Palace (GLP) project in Cotai will also be fully opened this year, increasing its earnings,” Moody’s said.
However, it noted that SJM’s leverage will remain very high at around 7.3x until 2024, reflecting its large adjusted debt increase during the pandemic from HK$16 billion (US$2.04 billion) in 2019 to HK$32 billion (US$4.08 billion) as of the end of 2022.
“While the gradual ramp-up at GLP will likely boost its earnings and bring down financial leverage further below 5.5x in 2025, there is a degree of uncertainty over the pace of improvement,” the agency explained.