Moody’s Upgrades Outlook For Macau Citing Gaming Market Recovery

Moody’s Investors Service has upgraded Macau’s rating citing improvements in the city’s credit levels and revenue trends. The ratings firm has also moved up its outlook for Macau from negative to stable. The special administrative enclave is now rated as “Aa3” up from “Aa2” issued last year. According to Moody’s all ratings in the Aa category are considered to be low credit risk.

Moody’s has listed several factors that went into the upgrade: the presence of fiscal buffers that could support the economy in case of any future negative shocks, continued progress on diversification efforts that reduce reliance of gaming and finally, better policy effectiveness with respect to building institutional strength.

In a statement, Moody’s said,

Macau’s economy is returning to growth following the sharp recession of 2014-2016. Gross gaming revenues [GGR] have been increasing on an annual basis since August 2016, boosted by the opening of two new casinos late last year and a recovery in tourism from China. With the economy recovering, we expect Macau to build additional buffers in coming years

May would be the 10th straight month of increase in the gaming industry’s gross gaming revenue (GGR). Analysts expect revenue growth for this month to be in the region of 14 to 20 percent when compared to May 2016.

Moody’s noted in its report that the shift from VIP gaming to mass market was helping to improve profitability of casino operators and enhance their resilience. In the first quarter of 2017, mass market revenue accounted for 44.1 percent of all casino revenue, which was marginally lower from the previous quarter’s 45.9 percent, but a sharp increase over 2011 levels when it was only 27 percent.

The ratings firm has said that growing income in China and easy accessibility of Macau from the mainland would ensure growth in revenue despite rising competition from other markets in Asia. During the first four months of the year, the Macau government has recorded total revenue of MOP35.90 billion, an increase of 10.6 percent over last year. Gaming taxes accounted for 83.3 percent of the total revenue.

Moody’s has forecasted that the gaming hub’s economic recovery is likely to be sustained for the next few years buoyed by the diversification program. It has however warned that Macau continues to remain vulnerable to shocks arising from developments in the mainland.

Moody’s recently downgraded China’s rating to A1 from Aa3 citing its economy-wide high debt levels developed as a result of credit-based economic stimulus programs.