Fitch Affirms SJM Holdings Credit Rating at BB-

The credit rating of Macau casino operator SJM Holdings was affirmed at “BB-“ with a “stable” outlook by Fitch Ratings. That’s three notches into junk territory.

While the research firm acknowledged that SJM’s credit grade is supported by an ongoing economic recovery in Macau, even against the backdrop of weakness in the Chinese economy, it noted that the concessionaire remains accrued during the build-out of its Grand Lisboa Palace (GLP) integrated resort.

SJMH s ratings are constrained by its high leverage, which was driven by debt built up for the GLP expansion and due to the Covid-19 pandemic,” observed Fitch. “The ratings also reflect the uncertainty on the continued ramp-up of GLP amid a competitive environment in Macau, with new openings and expansion of existing casinos. Even so, SJMH has a long history of operations in Macau, with a record of maintaining a conservative financial position.”

Issuers with “BB” ratings are potentially exposed to higher default risk, particularly if business conditions turn sour, but generally speaking, those companies have the financial resources to support debt payments.

It remains to be seen how long it will take for SJM to climb the ratings scale and possibly make a move to investment-grade status – a label possessed by some Macau concessionaires – but it is clear that the gaming company is .

Fitch noted it’s possible SJM will slash its debt/earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio from rom 6.9x in 2024 to 3.9x in 2026. That’s important because it would take the gaming company below the ratings agency’s “negative sensitivity” band of 5x. That effort will be supported by rising gaming revenue in Macau.

“We expect gross gaming revenue (GGR) in Macau to rise by a moderate pace in 2025, driven by further growth in visitation on increasing concerts and events and incremental easing of travel requirements between Macau and mainland China. Our expectation is broadly in line with the government s budget of MOP240 billion in GGR and 36 million in visitors,” added Fitch.

SJM’s capital expenditures are expected to average a tolerable $193.1 million, based on current exchange rates, over the next few years, according to the research firm.

The ongoing ramp-up of Grand Lisboa Palace could assist SJM in its efforts to pare debt and fortify its balance sheet.

GLP continues to ramp up, with market share reaching about 2.6% in 3Q24. We expect its market share to reach 3.0% in 2025, supported by initiatives to improve its connectivity, and mass appeal through food and beverage, retail and event offerings, as well as the opening of the nearby 50,000-capacity outdoor public concert venue at the start of 2025,” said Fitch.

GLP opened in July 2021 and appears to be on pace to reach the operator’s long-term goal of 5% market share.