Posted on: December 26, 2024, 11:57h.
Last updated on: December 26, 2024, 11:57h.
The credit rating of SJM Holdings, a casino operator in Macau, was recently affirmed at “BB-“ with a “stable” outlook by Fitch Ratings. This places SJM three notches into junk territory.
Fitch acknowledged that SJM’s credit rating is supported by Macau’s recovery, despite economic challenges in China. However, the casino operator is still burdened by high debt levels from the Grand Lisboa Palace (GLP) project.
SJM Holdings’ high leverage, primarily from GLP expansion debt and the impact of the Covid-19 pandemic, restricts its ratings. Despite the uncertainty around GLP’s progress in a competitive Macau market, SJM Holdings has a history of sound financial management and conservative approach.
Companies with “BB” ratings have higher default risks, especially in adverse business conditions, but they usually have the financial capability to meet debt obligations.
SJM Focuses on Debt Reduction
SJM’s priority is to reduce debt and potentially improve its credit ratings. The company aims to lower its debt/earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio from 6.9x in 2024 to 3.9x in 2026, supported by Macau’s increasing gaming revenue.
Fitch anticipates SJM to lower its debt/EBITDA ratio to below the agency’s “negative sensitivity” range of 5x through efforts to enhance gaming revenue in Macau.
“We expect gross gaming revenue (GGR) in Macau to rise by a moderate pace in 2025, driven by further growth in visitation on increasing concerts and events and incremental easing of travel requirements between Macau and mainland China. Our expectation is broadly in line with the government’s budget of MOP240 billion in GGR and 36 million in visitors,” Fitch added.
SJM’s capital expenditures are projected to average $193.1 million in the coming years, according to Fitch.
Grand Lisboa Palace Boosts Performance
The ongoing growth of Grand Lisboa Palace could aid SJM in reducing debt and strengthening its financial position.
“GLP continues to improve, with market share reaching 2.6% in 3Q24. We anticipate a rise to 3.0% in 2025, supported by efforts to enhance connectivity, mass appeal through various offerings, and the opening of a 50,000-capacity outdoor concert venue nearby in early 2025,” Fitch stated.
GLP, opened in July 2021, is progressing towards SJM’s goal of achieving a 5% market share.