Moody’s downgrades SJM’s debt following Macau’s slow recovery
Moody’s Investors Service Inc has downgraded the corporate family rating (CFR) of Macau casino operator SJM Holdings Ltd to “Ba3” from “Ba2”. Both ratings are considered lower quality, with “speculative elements” and subject to “substantial credit risk”.
At the same time, Moody’s downgraded to “B1” – a rating where the bond is deemed to have “high credit risk” – from “Ba3”, the senior unsecured ratings backed by bonds issued by an entity Partner, Champion Path Holdings. Ltd, which are guaranteed by SJM Holdings.
“Ratings remain under review for further downgrade,” Moody’s said in a memo on Friday.
“The downgrade is primarily driven by SJM’s prospects for a slower-than-expected recovery in gaming revenue in 2022-23,” Sean Hwang, assistant vice president and analyst at Moody’s, was quoted in a statement on the ratings change. .
He added: “The company’s continued consumption of cash in 2022 due to the continued weak operating environment amid ongoing Covid-19 restrictions in China, and the expected gradual recovery from 2023 only , suggest that SJM’s financial leverage will remain high over the next few years. ”
The analyst further said, “The ratings review continues to reflect SJM’s weak liquidity due to the company’s delay in refinancing its loan maturity with long-term debt. SJM’s ratings are expected to be confirmed once the refinancing is complete.
The casino company negotiated to increase the size of its loans to the banking sector and extend the maturity dates of this debt.
Earlier this month, SJM Holdings said it had the option of asking for 5 billion Hong Kong dollars (about $637 million). loan from its main shareholder STDM, in case of liquidity problems.
Moody’s also said in the update that it had lowered its forecast for the city’s mass market casino gaming gross revenue (GGR) in 2022 and 2023 to around 40% and 80% of 2019 levels, respectively.
The rating house said overhead costs at SJM Holdings were likely to “continue to rise in 2022-23, compared to 2021 levels”, due to the gradual opening of its HKD 39 billion Cotai complex. (US$5.0 billion), Grand Lisboa Palace (pictured), which had a first phase launch in late July 2021.
Moody’s also observed, “There is also a risk of further closure of SJM’s satellite casinos, which could increase SJM’s operating costs, as the company will need to integrate associated personnel into its direct payroll.”
This was a reference to hotel-casinos owned by third-party investors, but where the gaming license is provided by one of the local licensees.
Currently, there are 18 satellite casinos operating in the city, 14 of which are currently tied to gaming rights from concessionaire SJM Holdings.
A satellite – the gambling operation at the Grand Emperor Hotel in downtown Macau – is to end the casino’s business June 26said the hotel’s developer, Emperor Entertainment Hotel Ltd, in an April 1 filing in Hong Kong, citing the “bleak outlook for the high-end gaming segment” and protection of shareholder interests.