Fitch: Highest Global Structured Finance Upgrades Post-Crisis

NEW YORK--(BUSINESS WIRE)-- Amid the anti-corruption crackdown in China, tighter credit availability, and the recently implemented smoking and visa restrictions, Fitch Ratings revises its Macau gaming revenues growth forecast downward for 2015. We believe there is some risk that the visa and smoking rules will become more restrictive and that new casino openings may not gain the full allocation of table games. Competition for VIP customers is also weighing on Macau's gaming revenues. We revised the forecast down to negative 22% from negative 4%. February gaming revenues were down 49% on a year-over-year (YoY) basis and 18% on a month-over-month basis. March's estimated 40% month-to-date YoY decline is line with our revised forecast. We expect some recovery in the coming months as premium mass and VIP players avoided the New Year crowds in Macau.

We believe some VIP play is shifting to other jurisdictions that are under less political oversight and may offer better credit and/or commission terms. VIP volume increased 74% in 2H14 at Echo's and Crown's properties in Australia. Echo disclosed that its credit extensions increased 124% at its Sydney property in that quarter. NagaWorld in Cambodia grew its VIP volume in 2H14 by 47%. Much of the growth came from China. In Philippines, a VIP-focused expansion opened at Solaire late last year and City of Dreams Manila fully opened in February. Lower gaming tax rates is Australia and across South East Asia allow for higher VIP junket commissions relative to Macau, which is burdened by a 39% gaming tax rate. It also appears that some operators outside Macau are willing to be more aggressive with direct lending.

Our forecast incorporates more muted benefit from Galaxy's and Melco's projects coming online this year. Melco expressed concerns on their fourth-quarter call that table allocations may not be as generous as the company hoped. There is also potential for further opening delays as several concession holders expressed concerns about construction labor shortages. Galaxy Macau phase II opens May 27th and StudioCity is set to open mid 2015.

Over the long term we have a positive view of Macau's gaming industry. We estimate that GDP per table game is about $2 billion across all APAC countries, or roughly $300 million per table position assuming six positions per table. And, continued GDP expansion in the region and improving transportation infrastructure should support the gaming supply over the next several years.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Fitch Ratings
Alex Bumazhny, CFA
Director
Gaming, Lodging & Leisure
+1 212-908-9179
33 Whitehall Street
New York, NY
or
Rob Rowan
Senior Director
Fitch Wire
+1 212-908-9159
or
Media Relations
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

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