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The Macau gaming sector is undergoing some changes at the moment, and SJM Holdings is right in the middle of it. What’s fascinating is the way that the rating agencies are reacting to them, specifically when it comes to the firm’s financial solidity and creditworthiness while it navigates the transition.
Rating Agency Perspective Remains Unchanged
Fitch Ratings has stated explicitly that they don’t have any significant issues with SJM Holdings’ present financial situation despite all of the satellite casino developments. The rating agency has maintained the firm’s long-term foreign-currency issuer default rating at “BB-” with a stable outlook, which is essentially their firm way of stating that they believe the company is capable of coping with what lies ahead. This grade could be termed as “speculative,” but does not indicate any signs of short-term concern from the analysts who follow these closely.
What is most revealing is that Fitch is anticipating that the company will tighten its financial stance in the next couple of years. They’re hoping that SJM’s debt mountain of about HKD27 billion can be reduced to as low as HKD22 billion by the end of 2026. That’s an 18.5% decrease, which would be quite significant for a company with such drastic operational shifts.
The Satellite Casino Situation Explained
Here’s where things get complicated for SJM Holdings compared to other gaming companies in Macau. While Galaxy Entertainment and Melco Resorts only get about 2% of their earnings from satellite operations, SJM derives around 4% of its EBITDA from these venues. That might not sound like a huge difference, but it creates more complex challenges when you factor in everything else that comes with it.
SJM currently operates nine satellite casinos, but they’ve announced plans to only keep two of them running beyond 2025: Casino L’Arc Macau and Casino Ponte 16. The company intends to acquire the properties where these two casinos are located, converting them from satellite operations into directly managed assets. However, no binding agreements have been reached yet, and government approval is still pending.
Employment and Operational Challenges
The human side of this transition is probably the most complicated part. Macau’s government estimates that around 5,600 workers will be affected by the satellite casino closures, with the majority being local residents. For SJM, this means they’ll need to absorb most of these employees into their own operations, including both existing SJM staff and eligible workers currently employed by satellite property owners.
What makes this particularly challenging for SJM is the reassignment of approximately 440 gaming tables that will need to be redistributed to their other properties. The company has about 440 gaming tables and 300 slots from the nine satellite casinos, which account for around 36% of its overall table total and 19% of its slot machine inventory. It takes a lot of planning to relocate all this gear and related personnel without their current operations being disrupted.
Financial Outlook and Projections for Recovery
Despite these operational concerns, Fitch appears optimistic about SJM’s success during this transition. The rating agency expects the leverage of the company’s EBITDA to decrease from 6.9 times in 2024 to 3.9 times in 2026. This decrease would mainly be due to the sustained growth at Grand Lisboa Palace, their flagship Cotai property that was opened in July 2021, in the middle of the pandemic.
From a wider perspective, analysts are convinced that although the closure of satellite casinos will bring short-term hassles for SJM, they could ultimately produce beneficial impacts over the medium to long term. The reallocation of demand from closed satellite casinos could potentially increase revenues at the company’s main properties, with profits going entirely to SJM rather than being shared with third-party property owners.
Source: GGR Asia
