Ratings agency Fitch has outlined “increased confidence” in the ability of global casino giant Las Vegas Sands to develop a large-scale integrated resort in Japan without any significant impact on its leverage ratio.
The assessment came as Fitch affirmed the Long-Term Issuer Default Ratings of LVS and its subsidiaries at “BBB-“ with the same rating issued to senior secured debt held by LVS and Sands China.
Issuing a positive outlook for the Las Vegas-based operator, the ratings agency said its assessment was driven by its “increased confidence that LVS can absorb a large-scale development such as a Japan IR without material long-term deterioration in the leverage credit metrics or liquidity strain.
“In the context of reasonable assumptions for a project in Tokyo or Yokohama, should LVS win a license, Fitch believes LVS can achieve the maintenance of pro forma gross leverage under 3.0x and under more conservative scenarios, be in position to delever to below 3.0x in a reasonable time period (one to two years).”
Fitch’s confidence in LVS comes despite the company already embarking on US$5.5 billion in capex at its current Asian IRs, including US$2.2 billion to transform Sands Cotai Central into The Londoner Macao and US$3.3 billion for the expansion of Marina Bay Sands in Singapore.
Its Japan ambitions are focused on an integrated resort in Tokyo or Yokohama, the latter of which confirmed only last month its intention to bid as one of three initial locations for a Japanese integrated resort. LVS pulled out of the race for Osaka in August.
“LVS is in a good position to bid on an IR license in Japan, but Fitch does not expect heavy capex spending in Japan to occur until 2022 at the earliest,” it said.
Notably, the agency points to the 2022 expiration of Macau’s six gaming concessions as the primary remaining credit risk for LVS, although “the risk of the concession not being extended is very remote. A more plausible risk is LVS being subject to onerous extension terms, such as a higher tax, a concession payment, or a call by the government for significant lower ROI investments,” it added.
“Fitch believes that the government will take a programmatic approach to renewing the gaming concessions expiring 2022. Gaming is a major source of employment and tax revenues, and the concession holders, LVS in particular, scored well in the government’s mid-period review.”
