Fitch Ratings believes the Macau gaming and tourism industries will begin recovering from more than two years of economic hardship at some point next year.
The credit rating agency in its report “2022 Outlook: Greater China” suggests a meaningful gaming activity rebound will be experienced in mid-2022. Fitch, one of the three major credit ratings firms, believes tourism to the Chinese Special Administrative Region will “gain steam” after the first quarter.
Fitch analysts Andrew Fennell and George Xu trust as vaccination rates improve, Macau will be more open to cross-border travel with the mainland, Hong Kong, and Taiwan. Their note also assumes that electronic visas in China’s Individual Visit Scheme (IVS) will be fully restored around the midpoint of 2022.
Macau has remained relatively isolated throughout 2021 due to China’s “zero-COVID” policy approach to the pandemic. As a result, gross gaming revenue in 2021 through 11 months remains down almost 71 percent from 2019 levels.
Casinos on Alert
The Fitch Ratings 2022 China outlook provides a bit of optimism for Macau, but the financial firm says investors should take caution when it comes to buying shares of the casinos that operate in the region.
Fitch this week unveiled rating watch negative (RWN) alarms for Las Vegas Sands, MGM Resorts, and SJM Resorts.
When one of the three major credit ratings agencies — the other two being Standard & Poor’s (S&P) and Moody’s Investors Service — places a negative watch on a business, it signals that there are circumstances surrounding the organization that could cause the company to be see its credit rating downgraded in the near future.
Fitch takes most issue with the fact that each of the six casino licenses are set to expire on June 26, 2022. While the six firms are likely to receive an operating extension due to the pandemic, Fitch says the regulatory uncertainty is still reason for concern.
Piling on is the recent developments with VIP junket groups in Macau, which organize luxurious travel packages for mainland China’s wealthiest gamblers. Macau and Beijing are cracking down on such junket groups, and they’re expected to be nonexistent in Macau next year.
Licensees Will Remain Licensed
Fitch Ratings says that while the June 2022 expirations of the six gaming permits presents credit vulnerability for the licensees, the agency expects that the companies will all remain operating in Macau in the years ahead.
“Fitch ultimately believes the concession re-bidding procedure will take a pragmatic form,” the note explained.
The operators have invested billions of US dollars in capital, are large local employers and critical government tax payers, and have supported the local and mainland government’s broader policy goals, such as the Greater Bay Area Initiative,” the note clarified.
Fitch added that it believes the negative rating watches for the three companies will be resolved once Macau provides more clarity regarding the re-bidding process and insight into the region’s next gaming regulatory structure.
Fitch concluded by saying the ratings watches for Sands, MGM, and SJM will likely be resolved within the next six months. An extension of their licenses past June would temporarily resolve the RWN issuances.