Fitch Ratings is raising its gaming revenue growth outlook for Macau to 14% from 11% on the strength of VIP’s “resiliency in the face of macro headwinds in China”.
“This is the second time this year we are raising our 2013 revenue outlook. … Our initial outlook called for 8% growth for the market, incorporating 20%-25% growth in mass-market business and low-to-mid single-digit growth in the VIP segment.”
Fitch said, however, that it remains “circumspect” on VIP over the medium to long term.
“There is potential for credit tightening and shadow banking restrictions to affect VIP gaming revenue growth, although it may take time to filter through,” the agency said. “Junkets may be funded through the shadow banking system, so there is a risk of liquidity pressure and/or credit tightening among the junket system; however, there have been no signs of this as yet, and we believe there are mitigants to this risk.”
These include healthy operator balance sheets as a hedge against junket lending problems and the potential for consolidation among the junkets themselves, eliminating weaker players and enlarging financially stronger ones.
“Also, Macau remains capacity constrained relative to demand, which provides a buffer and should allow operators to re-segment capacity toward the mass market or VIP business backed by stronger junkets,” the firm said.
Fitch added that it isn’t concerned the six existing casino concessions won’t be renewed as they begin to expire in 2020 and therefore scant likelihood of new entrants to the market. Instead, the possible risks in this area, such as they may be, are that renewal might affect the “economics” in other ways, “such as sizable required non-gaming investments, renewal premiums or revisions to the structure of fees, taxes or leases”.
