It could be survival of the fittest for casinos in the Asia Pacific region according to a report by Fitch Ratings.
The ratings firm said that the amount of large casino projects scheduled to open in the next five years could oversaturate the market creating a long-term credit risk. Only operators with mass market opportunities and geographic diversity will better withstand the markets.
Billions of dollars were invested in the last decade to build upscale casinos to serve wealthy Chinese gamblers. According to the report, the premium segment has already plateaued in markets such as Singapore and Australia but investment is continuing across the region, even as China’s economy goes through a structural slowdown.
Fitch forecasts China’s GDP will grow 6.1 percent in 2019 and 2020, down from 6.8 percent in 2018.
Crown Resorts is spending $1 billion to build such a resort in Sydney, Australia. Caesars Entertainment and Mohegan Gaming & Entertainment are developing gaming-oriented integrated resorts (IR) in South Korea. Both resorts will rely heavily on Chinese visitation.
“South Korea projects require only modest equity capital from their sponsors and the debt at the project level is nonrecourse, which limits credit implications,” the report said. “The Sydney project has a long development cycle and is manageable for Crown due to the company’s solid investment-grade credit profile. Still, we view these developments as somewhat risky because foreigners-only projects in South Korea have experienced subpar return on investment and VIP or rolling chip revenue in Australia declined meaningfully since peaking around 2015-2016.
“Japan, South Korea and Singapore law limits gambling by locals either through entrance fees or quotas and limiting locations, which increases the emphasis on foreigner visitation,” the report continued “However, in the latter two markets, premium segment VIP or rolling chip revenue slowed due to the macroeconomic drivers in China and increased regional competition.”
Casino expansions are planned in Brisbane, Australia; Singapore; the Philippines; and Macau, along with smaller markets such as Vladivostok, Russia; the Mariana Islands; and Cambodia. In Macau, MGM China’s (BB/Stable) MGM Cotai started VIP operations in late 2018 and a premium SJM Holdings’ Grand Lisboa Palace may open in late 2019. Meanwhile, Osaka, Japan just began requests for the proposals process for an IR.
In Manila, Philippines, junket-driven VIP gross gaming revenue at commercial casinos was up 28 percent to about $830 million in 2018 from 2017. However, premium revenue in more mature markets declined or was only modestly positive.
“We view LVS as best positioned among global gaming operators due to its mass market orientation, despite performance at Marina Bay Sands,” Fitch said. “The mass market segment in Macau is less cyclical, more profitable and benefits from secular tailwinds related to the rising middle class and improved transportation infrastructure in the greater China area.”
