US Ops Could Be Forced Out of Macau, Though Unlikely, Says Fitch

• US-based Macau casino operators could be forced to sell assets or not renew licenses, says Fitch
• Ratings agency acknowledges those scenarios aren’t likely even as US/China trade war intensifies

The three US-based Macau concessionaries could face dire, though unlikely outcomes in the special administrative (SAR) should the US/China trade war continue and intensify.

In a recent report, Fitch Ratings said the worst-case scenario would be Macau opting to not renew the licenses of Las Vegas Sands (NYSE: LVS), MGM Resorts International (NYSE: MGM), and Wynn Resorts (NASDAQ: WYNN) when those permits expire in 2032.

Termination or non-renewal of these operators’ Macao gaming licenses in 2032 would be a worst-case scenario, which Fitch views as highly unlikely,” according to the research firm. “A scenario where U.S. operators are compelled to sell their Macao operations could become more plausible if U.S.-China relations deteriorate further in the medium term, but that is not envisaged in the forecast horizon.”

Fitch’s commentary arrives as shares of the trio of aforementioned casino stocks are struggling — woes that pertain to their Asia-based counterparts as well — as the world’s two largest economies engage in a tit-for-tat trade battle. The Macau units of the US-based operators are MGM China, Sands China, and Wynn Macau.

China History Instructive for US Macau Operators

China has a history of going after foreign companies amid diplomatic flaps with those corporations home nations, but as Fitch points out, the ensuing actions are typically more regulatory oversight than outright bans.

While trade tensions are running high, the US-based Macau casino operators are not without defense mechanisms. Namely, the SAR is heavily dependent on gaming revenue to support its economy and those three companies are pledging billions of dollars in spending there in the years ahead.

“The gaming industry contributes around 80% of Macao’s tax revenues, and the three U.S.-owned operators represent more than half of gross gaming revenues in the market,” adds Fitch. “The U.S. operators have also pledged material investments over the next 10 years to develop non-gaming attractions in Macao.”

Booting US-Based Macau Operators Easier Said Than Done

For Macau gaming regulators and the Chinese Communist Party (CCP), expelling MGM China, Sands China, and Wynn Macau isn’t a desirable scenario because the list of suitable replacements is short. Opting to not renew their licenses isn’t appealing, either, because the number of companies that pickup where those three operators would theoretically be leaving off is small.

As for those firms’ credit outlooks, Fitch sees balance sheets and free cash flow (FCF) prospects as mostly solid.

“Healthy balance sheets and strong liquidity mitigate some of these risks. LVS has ample rating headroom at current levels, with projected leverage ratios near positive rating sensitivities,” concludes the ratings agency. “Liquidity is abundant, supported by high cash levels and strong projected FCF despite dividend payments, share repurchases and capital spending projects. MGM and Wynn also have adequate rating headroom at current levels.”