Macau Coronavirus Outbreak Could Have Negative Credit Implications

Posted on: June 23, 2022, 11:52h. 

Last updated on: June 23, 2022, 12:41h.

A resurgence of coronavirus cases in Macau could weigh on the already fragile credit profiles of casino operators, says Moody’s Investors Service.

Macau operators
The Venetian Macau. Operators there are facing the specter of credit downgrades amid new coronavirus cases. (Image: Bloomberg)

On Tuesday, nine new COVID-19 cases were reported in the world’s largest casino hub — well above the one-week average of three — bringing the total to roughly 120 new cases in recent days. Currently, 700 people are quarantined inside the Fortuna hotel, as China conducts a massive two-day testing operation in the special administrative region (SAR).

Confirmed coronavirus cases since 19 June prompted citywide testing, the declaration of a state of immediate prevention, and increased restrictions on traveling into and out of Macao. These measures will at least temporarily hamper the already weak recovery in GGR, which remained 81% below pre-pandemic levels year to date in May 2022 compared with the same period in 2019,” says Moody’s.

Gaming venues in Macau are open amid the coronavirus surge. But other businesses are closed and travel to the SAR remains heavily restricted.

Macau Credit Woes Possible

Earlier today, concessionaires reached agreements to extend licenses through the end of this year, prompting hopes new public tenders are in the works, as Macau nears passage of fresh gaming regulations.

However, the good news ends there, because this year’s monthly gross gaming revenue (GGR) tallies in Macau are abysmal and getting worse. With the VIP revenue time line flailing, full recovery in the gaming hub may not be realized for another two years.

“We expect that Macao’s mass-market gaming revenue will be around 40% of 2019 levels this year, before improving to 80% in 2023, with full recovery in 2024. We also do not expect any significant recovery in VIP revenue because of the regulatory crackdown on junkets. However, there are significant risks to our assumptions,” adds Moody’s.

The COVID-19 outbreak and those gloomy forecasts arrive at a tenuous time for Macau operators, which are already grappling with sagging credit grades. For example, Las Vegas Sands (NYSE:LVS), the parent of Sands China, was recently stripped of its investment-grade mark by Fitch Ratings.

“Such lingering uncertainty over the recovery of gaming demand is reflected in the negative outlooks on all rated gaming companies that have significant exposure to Macao, including SJM Holdings Limited (Ba3 review for downgrade), Melco Resorts Finance Limited (Ba3 negative), Studio City Finance Limited (B1 negative), Wynn Resorts Finance, LLC (B1 negative), MGM China Holdings Limited (B1 negative), and Las Vegas Sands Corp. (Baa3 negative),” notes Moody’s.

Financial Issues Abound for Macau Operators

Potential credit downgrades at the hands of a new spate of coronavirus cases come as Macau concessionaires are already dealing with an array of financial issues.

Those include high cash burn rates, mounting debt, and what some analysts view as limited financing avenues. Regarding access to capital, some market observers believe US-based parents may need to funnel cash to Macau units, as Wynn Resorts (NASDAQ:WYNN) recently did, to support those operations.

Due to the precarious financial positions of gaming companies in the region and Macau’s slow recovery, it’s viewed as unlikely that operators will potentially imperil cash reserves and credit ratings by resuming dividends this year.