Macao casino operators are becoming focal point in bond market

The bond market is starting to pay attention to the creditworthiness of Macao casino operators as a result of the increase in tourism in the Chinese administrative zone. A portion of the interest in Macao casino bonds may stem from operational challenges facing Chinese real estate companies, who have traditionally been major players in Asia’s high-yield bond market.

Macao casino companies are becoming more creditworthy despite their regular issuance of low-rated, “high yield” bonds; this is shown by S&P Global’s recent upgrade of Sands China’s rating to “BBB-.”

Investor focus has shifted from Chinese real estate to Macao casino bonds due to the latter’s promising future, as shown by a pick-up in tourism and encouraging financial metrics. Sands secondary market prices In late October 2022, China’s five-year corporate bonds denominated in dollars were around 20% below face value. However, recent trading data points to a recovery, with prices still 6% below face value. The recovery of Macao’s casino industry has depended heavily on the readmission of tourists after the easing of infection control regulations.

There has been a notable improvement in creditworthiness, even if many Macau casino businesses still maintain speculative-grade ratings, such as MGM China Holdings and Wynn Macau’s “B+” rating from S&P Global. The fact that these enterprises experienced credit rating downgrades as a consequence of financial issues during the COVID-19 pandemic makes the recovery more noteworthy. The industry’s rising trajectory is shown by Sands China’s most recent upgrade.

Even with these positive developments, concerns remain about how rising interest rates may affect bonds with poor ratings, including those issued by Macao casinos. Investors should use caution when handling bonds with lower credit ratings. With the exception of MGM China Holdings, share prices at Macao casinos have already dropped to year-to-date lows, a sign of concern among the market.

The major source of revenue for Macao’s casino industry is mainland Chinese tourists. Market insiders continue to exercise caution as they consider the potential that Macao casinos’ future revenue growth may be restrained by China’s limited economic recovery. The overall tone suggests a cautious blend of caution owing to external economic issues and confidence over the industry’s recovery.

Original story by: Nikkei Asia