Asia-Pacific gaming operators holding debt for longer, Fitch report notes after string of downgrades
Heavy investment is keeping leverage high for major operators, even as Fitch maintains a positive view of the wider sector.
Key takeaways:
- Heavy capital spending and slower-than-expected earnings growth are keeping debt elevated among several Asia-Pacific gaming operators, Fitch notes in a new report
- The report comes after Genting Bhd and Genting Malaysia were downgraded to BBB-, SJM Holdings to B+ and Universal Entertainment to CCC+
A new report from Fitch highlights that Asia-Pacific gaming operators are carrying higher debt for longer as revenue growth fails to keep pace with major capital commitments. The report, APAC Gaming – Peer Credit Analysis, follows downgrades for several key market players, including Genting, SJM Holdings and Universal Entertainment.
Although Fitch continues to view the region’s wider gaming sector as structurally solid, it said corporate earnings have grown slower than expected relative to the companies’ heavy spending commitments. The impact varies significantly depending on each company’s project commitments and market conditions.
For Genting Bhd and Genting Malaysia, both downgraded to BBB- with stable outlooks, a financial recovery heavily depends on the development and earnings growth of their major full-scale casino project in New York. While the project is expected to become the primary driver of future revenue, construction costs averaging US$800m per year are expected to keep corporate leverage high over the next three years.
SJM Holdings was downgraded to B+ due to a slow recovery at its flagship Grand Lisboa Palace resort in Macau and slow debt reduction. However, Fitch expects the financial profile of SJM to improve gradually as the company lowers capital spending and realises cost savings from restructuring its satellite casino operations.
Universal Entertainment, the operator of Okada Manila in the Philippines, was downgraded to CCC+ due to weak demand, intense local competition and a structural shift towards online gambling. A sharp drop in high-spending VIP table games means the projected earnings for Universal will likely fall short of what is needed to cover debt interest and basic maintenance costs.
Fitch cites Australia’s Tabcorp Holdings as a strong performer in the region, successfully reducing its net leverage to comfortable levels following a temporary spike caused by an upfront licensing payment.
