Macau Concessionaires Facing ‘Significant Risks,’ Says Moody’s

On the heels of news that Macau is extending the temporary closure of casinos by another five days, it’s safe to say concessionaires there face considerable operational risk.

Macau concessionaires
Macau concessionaires
A view of Macau’s landscape, featuring several casinos. Moody’s sees risks for concessionaires there. (Image: Barron’s)

As a result of the new restrictions, which equal the special administrative region’s second round of casino closures since the onset of the coronavirus pandemic, analysts view the third quarter as a lost cause for operators and are forecasting slack revenue figures from mass market players.

We estimate gross gaming revenue (GGR) for the mass segment — the key contributor to gaming operators’ profit and cash flow — will weaken to 30% of 2019 levels this year, before improving to 70% in 2023. We expect a full recovery in the mass segment only in 2024, which will lead to a significant improvement in the gaming operators’ credit metrics,” said Moody’s Investors Service in a new report.

Further straining Macau operators is the point that a recovery in VIP betting is unlikely due to closures of junkets that serviced the SAR. The six Macau concessionaires are Galaxy Entertainment, Las Vegas Sands (NYSE:LVS), Melco Resorts & Entertainment (NASDAQ:MLCO), MGM Resorts International (NYSE:MGM), SJM Holdings and Wynn Resorts (NASDAQ:WYNN).

For Macau Concessionaires, Geography Matters

With the Macau recovery timeline consistently lengthening, geography matters for operators. Said another way, the more diverse their property portfolios are, the better.

SJM Holdings has a Macau-only presence, perhaps explaining why that operator is universally viewed as the most financially imperiled of the casino companies there.

Among US companies that don’t produce semiconductors, LVS and Wynn are among the most dependent on China (Macau) for revenue. With the casino hub essentially a ghost town for the time being, Sands is increasingly dependent on Marina Bay Sands in Singapore, while Wynn needs to wring more upside out of its US venues in Boston and Las Vegas.

“MGM is the most insulated from continued weakness in the Macao gaming market, because of the strong recovery in its extensive US operations,” adds Moody’s. “SJM is highly exposed not only because of its exclusive footprint in Macao but also because high operating expenses are driving EBITDA negative, which can further increase debt and weaken both liquidity and capital structure.”

Slow Recovery Problematic

Nearly seven months into 2022, it’s becoming clear, that barring a miracle, Macau’s recovery will be put off until 2023 and that’s a best case scenario.

“It could occur mainly because of continued travel restrictions and business closures amid the resurgence of the pandemic. In this downside scenario, we assume mass GGR will return to only 60% of pre-pandemic levels in 2023 and 80% in 2024. As a result, credit metrics of Macao-focused operators will remain very weak till 2024 and their ratings will come under heightened pressure,” concludes Moody’s

In a note to clients today, Morgan Stanley upgrades Wynn Macau to “overweight” from “equal-weight” while reiterating an “overweight” rating on Sands China. The bank rates MGM China “equal-weight.” Those are the Macau arms of the aforementioned trio of US-based gaming companies.

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