Ratings Agency Fitch has downgraded the Long-Term Foreign-Currency Issuer Default Rating and senior unsecured rating of Macau casino operator SJM Holdings Ltd from “BB+” to “BB” over the company’s slow pace in securing a new loan facility and uncertainty over license renewal.
Fitch is the second such agency to do so, with Moody’s Investors Service having last week downgraded SJM’s corporate family rating and the backed senior unsecured ratings on bonds issued by the company for the very same reasons.
In a Monday note, Fitch explained that the downgrade “is because the company has been slower than we expected in obtaining a new HK$19 billion (US$2.4 billion) long-term syndicated loan facility to repay existing loans due 28 February 2022, although most banks have agreed to extend the existing loans by a year. Material regulatory uncertainty also remains over SJM’s gaming concession in Macau as its 20-year term is set to expire on 26 June 2022.”
The agency has also placed SJM on Ratings Watch Negative which it says reflects the potential for further negative rating action if the company cannot fully refinance its maturities with long-term capital, if it fails to secure a new gaming concession or more onerous economic licensing conditions are imposed on SJM as part of new licensing conditions.
Among Fitch’s concerns are the speed of recovery of the Macau gaming industry, which it says is likely to recover only to 40% of 2019 levels in 2022 before bouncing back to 90% by 2023.
On SJM, Fitch forecasts that its adjusted net debt/EBITDAR will improve to 3.1x by 2023 and 1.6x – back below its negative rating sensitivity of 2.0x – by 2024, from negative EBITDAR in 2020, subject to the successful ramp-up of the company’s new HK$39 billion (US$5 billion) Cotai integrated resort, Grand Lisboa Palace (GLP).
GLP is predicted to achieve zero Adjusted Property EBITDA in 2022, rising to HK$2.0 billion (US$256 million) in 2023 and HK$3.5 billion (US$449 million) in 2024.
