Six game concessions in the city have pledged 118.8 billion ($14.8 billion) of MOP to the city government over the next decade. About 91.5% of that amount, or 108.7 billion MOPs, will be allocated to “exploring overseas customer markets and developing non-game projects.”
The rating agency said the investment commitment was “high but manageable” as long as Macau’s gross gaming revenue (GGR) “starts to recover this year.”
S&P expects Macau’s mass market GGR to range from 60% to 70% of 2019 levels before the start of the COVID-19 pandemic this year. The latest estimate comes after China’s “fast transition from zero COVID-19 policy stance” in December 2022. 경마사이트프로
S&P analyst Melissa Long said, “I think ideal operators probably want to cover capital cost investments in advance. For example, if we’re going to add meeting space or build an entertainment center, we want to open as soon as possible and use our capital costs faster in a 10-year concession period,” he said.
She added: “The operating costs of programming the space and bringing in entertainment or sporting events, conferences and groups will come later in the concession period.”
But Mrs Long said there was still “some uncertainty at this point” as to when the promised capital costs would be spent. “The operators have not publicly promised what the plan is and what the duration is,” she pointed out.
Nevertheless, “Given the need to design some of these projects and obtain government approval, the cost of capital will not be large in 2023 and will likely increase in 2024 and 2025,” Mr Long said.
According to S&P, there have been “some indications” from operators that there may be a “significant even division” between capital and operating costs in relation to the investments committed over the decade.
MGM China Lamp Up
Also at the webinar, S&P analyst Aras Poon said the rating agency does not expect the impact of promised non-game investments to be significant to the Macau casino company’s credit metrics.
He added that some of the projects highlighted by operators regarding capital costs are “small-scale projects and have the potential to spread over the licensing period.”
“We therefore believe that the cash outflow will spread more evenly over the grant period. At least in 2023 or early 2024, no major incremental cash outflows are expected that could have a potential impact on credit indicators,” Mr. Poon said.
Regarding revenue generated by non-gaming assets, Mr. Poon said he believes the gaming sector will remain a “key driver” in terms of earnings before interest, taxation, depreciation and amortization (EBITDA) and cash flow for Macau operators.
“Having more performances and concerts in the short term will not make a significant gradual contribution to overall revenue,” he added.
In terms of business expansion, S&P expects MGM China Holdings’ cash flow to benefit from “36% increase” in the number of game tables allocated to the company, or an additional 200 tables, under the new concession. MGM China has been granted permission to operate a total of 750 game tables and 1,700 game consoles under the new license, according to a filing with the Hong Kong Exchange in December.
“Due to that increasing game capacity and our expectation that MGM China may take some [market] share, we expect MGM China’s cash flow to recover closer to pre-pandemic levels than other operators,” Long said.
The rating agency will also see Win Macau Inc’s earnings recover at a “slow pace” than the overall market “given the higher percentage of mixed VIP earnings before the pandemic,” the analyst added.
But easing COVID-19 control measures “should help lower cash burdens and improve credit indicators,” S&P said, adding Macau operators are likely to return to positive EBITDA in the second half of the year.
However, the agency warned that “there is still uncertainty about how the recovery will unfold and how consumers will behave, especially as the public health environment changes.”