Fitch Ratings Inc has recently adjusted its economic expectations for SJM Holdings Ltd, indicating a potential increase in the company's EBITDA leverage. This adjustment suggests that by 2025, the leverage is expected to rise to over 8.0 times, compared to the previous year's 7.0 times. In its analysis, Fitch forecasts a gradual decline in this figure, anticipating it will drop below 5.0 times by 2027. This analysis was detailed in a report by Fitch on Friday, reflecting concerns about the financial trajectory of the company.
In this report, Fitch revised the outlook for SJM Holdings' long-term foreign-currency issuer default rating from 'stable' to 'negative', while maintaining the rating at 'BB-'. Analysts Samuel Hui, Rebecca Tang, and Tyran Kam explained that the negative outlook is due to "heightened uncertainty" surrounding the company's efforts to reduce leverage. This concern stems from recent financial results that show slowing improvements in EBITDA and cash flow, particularly from the Grand Lisboa Palace resort.
Despite the challenges, Fitch remains optimistic about SJM Holdings' potential improvement within the 'BB-' leverage threshold during the forecast period. However, they caution that any further operational difficulties might necessitate a reevaluation of the rating.
Recent Financial Performance and Strategic Challenges
In recent months, SJM Holdings has reported positive yet modest revenue growth. During the first six months of this year, the company achieved a group-wide revenue of nearly HKD14.64 billion (roughly US$1.88 billion), marking a 6.1 percent increase compared to the previous year. However, the company also reported a slight increase in its financial loss, with the first-half loss rising to HKD182.2 million from the previous year's HKD162.4 million. The company's adjusted EBITDA fell by 5.1 percent year-on-year, amounting to just under HKD1.65 billion during the first six months leading up to June 30 this year.
Amid these financial metrics, Fitch analysts believe that SJM Holdings remains committed to a deleveraging strategy, focusing on improving free cash flow and reducing debt obligations. Nevertheless, Fitch acknowledges the challenges posed by the delayed improvements compared to previous projections, specifically concerning the Grand Lisboa Palace's performance and the impact of satellite casino closures.
The second quarter of 2025 brought particular challenges due to unfavorable VIP hold rates, which influenced profit margins. Although the Grand Lisboa Palace reported a slight quarter-on-quarter revenue growth of 1 percent and an EBITDA margin of 3 percent, both fell short of expectations, even when adjusted for fluctuations in luck.
Market Share Concerns and Strategic Initiatives
Another area of concern highlighted by Fitch is SJM Holdings' declining market share, attributed to heightened competition from newly opened hotels and promotional efforts by competitors in Macau. The Grand Lisboa Palace, in particular, has faced increased operating expenses, driven largely by marketing activities, during the second quarter. These factors, coupled with stagnant revenue growth, have led to margin compression. To combat these challenges, SJM Holdings is exploring various strategies to heighten the Grand Lisboa Palace's appeal. This includes enhancements in connectivity, food and beverage options, retail offerings, and events. However, there remains uncertainty about the effectiveness of these strategies in regaining market share.
SJM Holdings has also revealed plans to cease operations in seven out of its nine satellite casinos this year, consolidating operations around its two remaining casinos, Ponte 16 and L’Arc Macau. As part of this restructuring, SJM Holdings plans to integrate displaced gaming resources, including 458 tables and over 4,000 staff, into its self-managed venues. Adding to its strategic restructuring, SJM Holdings will acquire parts of Hotel Lisboa, with a total consideration of HKD529 million, in a deal with its parent company, Sociedade de Turismo e Diversões de Macau SA. Fitch analysts emphasize that SJM's ability to capture the departing satellite casinos' market share will be critical to its credit profile, speculating that the reallocated tables have the potential to deliver higher margins than previous operations, thereby positively affecting EBITDA.
Lastly, Fitch foresees that SJM Holdings will be able to secure bank loans to refinance most of its US$500 million bond maturing in January 2026, supplemented by existing and potential additional credit facilities.
Source: Fitch downgrades SJM Holdings' outlook, flags 'uncertainty' regarding deleveraging efforts, GGRAsia, September 12, 2025.
Posted by Wizard
Sep 15 2025
Sep 15 2025
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