Delayed recovery seen for Macau’s casino operators
Strict Covid-19 restrictions and rising interest rates weigh on gaming industry, analysts warn
Macau’s casino industry faces a delayed recovery from the impact of a citywide lockdown and a high-interest-rate environment, according to two global rating agencies.
Gaming operators in Macau face low tourist arrivals because of strict coronavirus-related travel restrictions and most recently business closures, according to a report published by Moody’s Investors Service.
Macau shut its casinos for the first time in two years on Monday as the gambling hub suspended almost all business activities for a week in a bid to control a rising number of Covid-19 infections caused by the Omicron variant.
The city’s gambling industry has already been hit hard by economic disruptions caused by the pandemic, with gaming revenues falling by 62 per cent year on year to 2.5 billion patacas last month. In contrast, revenues in June 2019 totalled 23.8 billion patacas.
Moody’s expects the city’s gross gaming revenue (GGR) for the mass segment, the key contributor to gaming operators’ profits and cash flow, to remain weak at only 30 per cent of 2019’s levels this year before improving to 70 per cent next year.
“A full recovery in the mass segment is likely only in 2024, which will lead to a significant improvement in operators’ credit metrics,” Gloria Tsuen, a senior credit officer at Moody’s, said in the report.
A slower-than-expected GGR recovery, likely because of continued travel restrictions, was a key risk, especially for companies that operated solely in Macau, she added.
“The surge in Covid-19 cases and strict control measures in Macau and the mainland have [resulted in] limited visits to Macau, and we believe this disruption will possibly delay the recovery for Macau not only for this year, but also next year,” said Aras Poon, associate director at S&P Global Ratings.
Last week, S&P lowered Macau’s GGR forecast for the year to between only 20 per cent and 30 per cent of 2019’s levels, from its previous estimate of between 30 per cent and 40 per cent.
Next year, the agency expects GGR to recover to 50 per cent to 70 per cent of 2019’s levels, compared to an earlier forecast of 80 per cent.
On July 11, Morningstar also lowered its GGR forecasts for this year and next year to mid-20 per cent and 60 per cent of 2019’s levels, respectively, compared to its previous estimates of 40 per cent and 70 per cent.
The citywide lockdown meant it might take a bit longer for Macau’s casino operators to see a recovery, said Ben Lee, a consultant at iGamiX Management & Consulting in Macau.
“With the [Covid-19] waves that we’ve seen recently on the mainland and our open border with the mainland, it was to an extent inevitable that we would get transmissions. Looking forward, hopefully we can get this under control as quickly as possible,” Lee said.
A high-interest-rate environment could further slow the recovery of Macau’s gaming operators, said Melissa Long, director of corporate ratings at S&P.
The consumer price index in the United States rose by 9.1 per cent year on year last month, its fastest pace of gains since November 1981. This has spurred expectations that the Federal Reserve could raise interest rates by as much as a full percentage point later this month, the biggest increase in 40 years. The Bank of Canada also raised its interest rate by 100 basis points on Wednesday.
“Higher interest rates are going to slow or lower cash flow, and so it’s going to slow the recovery and credit measures [of casino operators in Macau],” Long said.