Fitch Ratings Inc. has recently affirmed the long-term foreign-currency issuer default rating for Macau casino company SJM Holdings Ltd at “BB-,” categorized as a “speculative” rating, but with a “stable” outlook. Despite this speculative rating, Fitch anticipates a decline in the company’s leverage over the coming years. Specifically, they forecast a reduction of SJM Holdings' debt from HKD27 billion (USD 3.48 billion) as of September 30, to a projected HKD22 billion by the end of 2026—a decrease of 18.5%. This favorable projection is supported by expected growth in the firm’s earnings before interest, taxation, depreciation, and amortization (EBITDA), which Fitch links to the increasing operations of the Grand Lisboa Palace casino resort located in Cotai.
Driving Factors Behind the Anticipated Debt Reduction
The optimistic outlook is anchored on the positive EBITDA trajectory as Grand Lisboa Palace continues its operational ramp-up, facilitating a potential reduction in EBITDA leverage from 6.9 times in 2024 to 3.9 times by 2026. This adjustment would bring EBITDA leverage below Fitch's negative sensitivity threshold of 5.0 times. Fitch's report suggests that the debt balance could recede from HKD27 billion by the end of September 2024 to HKD25 billion by the end of 2025, culminating at HKD22 billion at the conclusion of 2026.
This strategic outlook aligns with SJM Holdings' plans to prioritize debt reduction while maintaining a conservative financial approach. The Grand Lisboa Palace, which began operations in July 2021, experienced initial delays due to the COVID-19 pandemic and associated disruptions in Macau's tourism sector. However, since the easing of travel restrictions in January 2023, there have been notable improvements, although some industry observers have commented on the pace of its business build-up.
Challenges Amidst a Competitive Market
Though Fitch Ratings highlights the potential for improvement, it also notes certain challenges facing SJM Holdings. The company's ratings remain influenced by high leverage levels that were initially fueled by debt incurred for the expansion of the Grand Lisboa Palace and compounded by the pandemic. Additionally, an uncertain competitive environment in Macau presents ongoing challenges, particularly with new casino openings and the expansion of existing establishments. Nevertheless, Fitch acknowledges SJM Holdings' extensive history in Macau's gaming industry and its consistent conservative financial management.
Commentary from brokerage CLSA Ltd indicates that SJM Holdings is expected to be the only one among Macau's six predominant gaming operators not to issue a dividend in 2025. In contrast, as a gesture of appreciation for their employees' contributions, SJM Holdings plans, according to an internal company memo, to grant a discretionary bonus in January 2025 to eligible staff, acknowledging their role in the company's steady progress during 2024.
Source: Fitch tips 18.5pct cut in SJM debt pile by end 2026, GGRAsia, December 26, 2024.
Posted by Wizard
Dec 26 2024
Dec 26 2024
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