Fitch turns more negative on Macau, but reiterates rating

Ratings agency Fitch said it has turned more negative on Macau in the near term after a recent visit by analysts and has cut its estimate for gross gambling revenue in 2015 to a drop of 29 percent from a decline of 22 percent previously.

The revision reflects continued revenue weakness in April and an opinion that a strong rebound is unlikely throughout the rest of the year, it said in a note. Despite the decline, Fitch said in a separate note that it is retaining Macau’s credit rating at AA- with a stable outlook.

“Our new forecast, which sees 2015 GGR falling to $31 billion, assumes daily GGR of MOP 650 million ($81.4 million) to MOP 680 million for the balance of the year, with the higher end of the range occurring toward the end of the year,” the note said.

“The 2H15 improvement takes into account our opinion that the market is near the trough and that Galaxy Macau's phase II opening on May 27, as well as Melco's StudioCity opening in 3Q15, will drive some incremental, albeit limited, growth.”

However, it also says the situation is highly unclear and neither a worse slump, or a steep recovery can be ruled out.

The analysts cited several factors for the decision to revise down forecasts, including a potential cap on visitors from the mainland, a potential complete smoking ban and delays in key infrastructure projects such as a bridge to Hong Kong.

However, it says a visitor cap may be partially offset by an increase in the length of stay. It calculates that an increase in the length of stay from 1.0 day in 2014 to 1.14 days will absorb the nearly 12,000 rooms coming on line through the current development cycle.

Although the ratings agency says it remains optimistic in the long term as the markets in Asia Pacific remain under penetrated, it says that it may take several years for Macau to return to annual GGR in the realm of $40 billion.

Fitch retained Macau’s credit rating because it said the strong sovereign balance sheet, with no debt and very large fiscal reserves gives Macau the flexibility to handle vulnerabilities arising from its heavy reliance on the gaming industry.