SJM Holdings’ plan to bring satellite casinos L’Arc Macau and Ponte 16 into its fold while discontinuing the seven others it licenses to third-party operators is “unlikely to significantly impact” the concessionaire’s credit profile, according to Fitch Ratings.
The “moderate negative impact” that debt-funded acquisitions of L’Arc Macau and Ponte 16 could potentially have on SJM’s leverage profile would be partially offset by additional earnings before interest, taxation, depreciation, and amortisation (EBITDA) from continuing to operate the casinos, it noted in a memo on Sunday that was reported by GGR Asia.
“We expect the impact to be manageable.”
Last December, Fitch gave SJM – Macao’s oldest casino operator and the only one with local roots – a long-term foreign-currency issuer default rating of BB- with a stable outlook.
“The EBITDA impact will be subject to SJM’s ability to capture market share with the additional tables at its self-operated casinos,” it said. “In our rating case, we assume the company will gain sufficient market share, such that the EBITDA impact from the satellite casino closures is broadly neutral.”
[See more: Satellite casinos in Macao: what their closure means for the future]
However, JP Morgan Securities (Asia Pacific) has questioned whether the concessionaire would be able to gain – or even retain – market share after the proposed changes to its structure. Its investment advisory noted that the government’s requirement for all staff from the closing satellites to be retained “could even result in losses from wage burdens.”
It is understood that SJM would move gaming tables from its closing properties into self-operated casinos like Grand Lisboa Palace and Grand Lisboa, though Citigroup has said even that could lead to a drop in market share. “There is a possibility that more tables could lead to a dilution in table utilisation,” the bank noted.
Amendments to Macao’s gaming law mean all 11 of Macao’s satellite casinos must close by the end of the year. The two not licensed by SJM are licensed by Galaxy and Melco.
The term “satellite casino” refers to a business under the licence of one of Macao’s six gaming concessionaires but operated by third parties within premises not owned by the concessionaire. These casinos have historically functioned under a partnership model, where revenue is shared between the concessionaire and the third-party operator.
