Las Vegas Sands Debt Affirmed BBB- by Fitch, Ratings Agency Sees Macau Extension Risk as Remote

Posted on: October 13, 2019, 05:00h. 

Last updated on: October 13, 2019, 10:29h.

Las Vegas Sands Corp. (NYSE:LVS) had its corporate credit rating affirmed at BBB- by Fitch Ratings, with the research firm saying there’s a “remote” chance the gaming company’s Macau licenses will not be extended in 2022.

Sheldon Adelson’s Las Vegas Sands keeps its investment-grade rating, and Fitch sees little chance of Macau extension issues. (Image: CNBC)

Sands, which operates five integrated resorts in Macau and has had a presence on the peninsula for nearly two decades, derived nearly two-thirds of its second-quarter revenue from the Special Administrative Region (SAR).

While Fitch concedes that it’s unlikely LVS doesn’t have its Macau licenses renewed, the credit evaluator notes the issue is preventing it from boosting the gaming company’s rating to BBB, and that there is the potential for burdensome extension terms.

Fitch believes that the risk of the concession not being extended is very remote,” said the ratings agency in a note obtained by “A more plausible risk is LVS being subject to onerous extension terms, such as a higher tax, a concession payment, or a call by the government for significant lower ROI investments.”

Macau’s next chief executive, Ho Iat Seng, takes office in December, prompting Fitch to say the concession extension conversation should gain momentum in 2020. Each of the SAR’s six concession holders – LVS, Galaxy Entertainment, MGM Resorts, Wynn Resorts, Melco Resorts, and SJM Holdings – must renew their licenses in 2022.

Fitch is the second ratings firm to say it’s likely operators have their Macau concessions renewed, with Moody’s voicing a similar opinion in August.

Positive Outlook

While Fitch is currently somewhat reluctant to up its rating on LVS to BBB, the ratings firm does have a “positive” outlook on the company’s credit profile, and rates Marina Bay Sands Pte Ltd., the gaming operator’s Singapore unit, BBB.

“LVS has operated well within Fitch’s upgrade leverage ratio sensitivities for an extended period of time, driving the Positive Outlook,” said Fitch. “Also driving the Outlook is Fitch’s increased confidence that LVS can absorb a large scale development, such as a Japan integrated resort (IR), without material long-term deterioration in the leverage credit metrics or liquidity strain.”

Due to its success in Macau and Singapore, LVS is widely viewed as one of the leading contenders to land one of Japan’s prized gaming licenses. Sands, one of the best generators of return on invested capital (ROIC) in the gaming industry, said in August it’s focusing its Japan integrated resort efforts on Tokyo and Yokohama.

At the end of the second quarter, LVS had $12.02 billion in debt and $4.03 billion in cash on hand. In late July, the company sold $3.5 billion of debt, its first issue with investment-grade ratings from all three major credit agencies.

Good Vibes In Macau

Gross gaming revenue (GGR) on the peninsula has recently sagged due to the slowing Chinese economy and the trade spat with the US, among other factors. But Fitch has a bullish long-term view on the region and LVS.

“Fitch expects LVS to experience roughly mid-single digit growth at its properties and slightly exceed the broader Macau market, given their focus on the mass market,” said the research firm. “Fitch maintains a positive long-term outlook on Macau, supported by the expanding middle class in China and the development of infrastructure in and around Macau. Fitch believes that the government will take a programmatic approach to renewing the gaming concessions expiring 2022.”