Fitch Ratings affirms ‘BB-‘ status for SJM

Fitch Ratings removed the rating watch for the operator.

Macau.- Fitch Ratings has affirmed SJM Holdings Limited‘s “Long-Term Foreign-Currency Issuer Default Rating” and senior unsecured rating at “BB-“.  In a recent note, Fitch Ratings said the outlook is negative. SJM Holdings had held “BB” ratings until last June when the credit rating provider lowered its status to “BB-“.

The “BB-” rating on the outstanding notes issued by its subsidiary, Champion Path Holdings Limited, has also been affirmed. The notes are rated at the same level as SJM’s senior unsecured rating, as they represent “the company’s unconditional and irrevocable obligations.”

Fitch has removed the “Rating Watch Negative” for all of the ratings after the official award of a new, 10-year gaming concession in Macau on 16 December 2022, with reasonable terms and commitments, in Fitch’s opinion. 

Visitor recovery remains a key risk to SJM’s deleveraging trajectory, which is reflected in the Negative Outlook. Fitch continues to forecast SJM’s gross leverage metrics will return to within the ‘BB-‘ threshold by 2025, assuming a successful ramp-up of its Grand Lisboa Palace (GLP) resort.

The group notes that the removal of the concession overhang eliminates a material credit risk, but uncertainty remains over a recovery in gross gaming revenues and visitor arrivals into Macau, despite recent positive developments.

Fitch’s base case expects Macau’s GGR to be 50 per cent, 70 per cent and 90 per cent of 2019 levels in 2023, 2024 and 2025, respectively.

“We believe there is potential pent-up demand for gaming and leisure-oriented activities in Macau following nearly three years of pandemic restrictions for mainland Chinese gamblers. Other global gaming jurisdictions experienced rapid recovery to pre-pandemic demand levels once travel restrictions were lifted, often less than a year,” the note states.

“These include Las Vegas in 2021 and our expectation of a Singapore rebound in 2023. Macau visitor arrivals remain significantly depressed and our outlook on recovery will depend on monthly visitor and GGR figures,” Fitch added. 

Fitch expects SJM’s gross leverage to remain elevated and inconsistent with a ‘BB-‘ rating until at least 2025, as GLP will take time to ramp up after its opening in July 2021. 

“We forecast gross leverage of 9.9x and 4.4x in 2024 and 2025, respectively. We believe SJM is willing and able to deleverage further in the longer term once GLP ramps up, as the company had been maintaining a strong balance sheet, with a net cash position until 2019,” the group predicted and added that “the magnitude of the spending will be manageable from a cash flow perspective as operations normalise, and is reasonable relative to its historical spending.”

See also: Macau Legend to operate satellite casinos under SJM licence