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Credit FAQ: How Macau Gaming's Recovery May Unfold

Few sectors have been hit as hard by the COVID-19 outbreak as travel and leisure, including Macau gaming. Its casinos overwhelmingly rely on visitors from mainland China, but travel restrictions have shut that supply. Casino revenues mostly stopped in April. As China's COVID-19 infection cases have stabilized at a low number, and as government officials contemplate easing travel restrictions, S&P Global Ratings now considers how Macau's casinos might recover in the second half, and what the ratings implications might be.

Macau is the world's largest gambling center, with gross gaming revenues of over US$36 billion in 2019. It is an important market for international operators such as Las Vegas Sands Corp., MGM Resorts International, and Wynn Resorts Ltd., which have all invested heavily in Macau and rely on the market for growth (as compared with the mature Las Vegas market).

Frequently Asked Questions

What is the range of possible gross gaming revenue outcomes for Macau in 2020?

We forecast Macau's gross gaming revenue (GGR) could drop by 40%-50% in 2020. GGR declines will likely accelerate in the second quarter of 2020, from a 60% drop in the first quarter. Macau GGR slid 97% in April when travel and quarantine restrictions severely curtailed visits to Macau. We don't foresee a meaningful recovery starting before July, supported by the gradual easing of travel restrictions and the start of the summer holidays. Year-on-year growth will likely be strong in 2021, ranging from 50%-65%, but GGR may still be 10%-20% below 2019 levels.

Chart 1


Table 1

Macau Gross Gaming Revenue Will Likely Tumble In 2020, Then Recover In 2021
Year on year change (%)
First quarter Second quarter Third quarter Fourth quarter Full year
2017 13 22 22 20 19
2018 21 17 10 9 14
2019 (0) (0) (4) (8) (3)
2020e (60) (85) to (95) (15) to (35) (15) to 5 (40) to (50)
2021e 50-65
e--Estimate. Source: S&P Global Ratings.

We believe the premium mass market will recover faster than the "VIP" and base mass segments.

Base mass is likely more affected by the surge in unemployment rates. VIP customers (or high rollers) that play on credit could face a tighter liquidity environment as trade financing drops.

From a supply perspective, operators will likely target their highest-value customers to improve marketing efficiency and cash flow as social distancing measures limit gaming capacity. Premium mass also commands a higher margin because the segment does not involve junket commissions, as does the VIP segment, and bet sizes are larger than base mass.

What hurdles does Macau face on its road to recovery?

A combination of quarantine restrictions, visa limitations, travel fears, economic challenges, and reduced gaming capacity will likely weigh on Macau's GGR recovery, especially in 2020.

Travel and quarantine restrictions  

These are the most obvious obstacles to Macau's GGR recovery. The casino hub has minimal domestic demand--it is heavily reliant on visitors from mainland China and Hong Kong. This differs from gaming operations in Australia, New Zealand, Malaysia, and Cambodia, which draw heavily on local customers. Currently, visitors traveling to Macau from most countries must undergo a two-week quarantine. This has severely curtailed visitation.

Travel restrictions into Macau have started easing with two primary entry points into Macau (Gongbei border and the Hong Kong-Zhuhai-Macau Bridge) beginning normal operating hours from early May. Travel restrictions out of mainland China and return quarantine rules remain in place, however, drastically limiting the number of arrivals from the enclave's main market.

Hong Kong's quarantine restrictions for visitors arriving from mainland China and Macau will remain in place until at least June 7, 2020, discouraging visits via the Hong Kong border crossing. The easing of these restriction will likely be gradual given fears of unleashing a fresh COVID-19 outbreak in Hong Kong and Macau. We believe the easing of restrictions on travel from Guangdong will be key, given the province is Macau's main market in China. An easing of travel restrictions from Hong Kong is also key to the GGR recovery, as a sizable number of mainland visitors come to Macau through that market.

Table 2

Easing Of Guangdong Travel Restrictions Is Key To Restarting Macao Gaming Industry
Origin of Macau visitor Number of visitors % of total
Guangdong province 12,816,693 45.9
Hunan province 1,124,039 4.0
Fujian province 930,098 3.3
Hubei province 923,470 3.3
Guangxi Zhuang Autonomous Region 857,665 3.1
Zhejiang province 788,762 2.8
Beijing 390,491 1.4
Tianjin 124,620 0.4
Shanghai 721,783 2.6
Chongqing 286,400 1.0
Visitors from other parts of China 8,959,198 32.1
Total visitors from mainland China 27,923,219 100.0
Source: Public Security Police Force, Government of Macao Special Administrative Region.

Chart 2


Visa limitations  

China's suspension of individual travel visas for visits to Macau since late January 2020 has directly hit visitor numbers. Visitors entering Macau through the Individual Visit Scheme (IVS) represented about 47% of visitors from mainland China, or about one-third of total visitors to Macau in 2019. We believe China could resume issuing visas under the IVS scheme by the end of the second quarter, paving the way for a more meaningful recovery in GGR beginning in the third quarter of 2020.

Chart 3


Economic challenges 

As we assume China's real GDP growth will slow and Hong Kong's will be negative for a second consecutive year, customers' spending power will likely weaken. This means that, even as visitor numbers pick up, customer bets may shrink.

Table 3

GDP Of Macau's Main Markets Set To Recover After Tough 2020
2019 2020e 2021e 2022e 2023e
Real GDP growth (%) 6.10 1.20 7.40 4.70 5.30
Unemployment rate (%) 3.60 4.90 4.50 4.10 3.60
Hong Kong
Real GDP growth (%) (1.20) (3.90) 4.80 2.60 2.40
Unemployment rate (%) 3.00 4.50 4.00 3.70 3.50
e--Estimate. Source: S&P Global Ratings.

Travel fears 

A lingering of fear of COVID-19 infection may affect consumers' willingness to travel over the next 12 months even as travel restrictions are lifted.

Reduced gaming capacity 

Social distancing measures will likely reduce slot and table capacity, which could slow the recovery and potential gaming revenue even as travel restrictions are lifted. In the first quarter ending March 31, 2020, the number of gaming tables dropped 18% quarter-on-quarter. The number of slot machines fell 58% in the same period.

To implement social distancing measures, casino operators turn off slot machines, limit the number of customers seated at a table, stop players from standing behind tables, and space tables further apart. Lower table capacity won't likely be a bottleneck over the next 12 months given probable lower table yields when footfall drops.

Chart 4a


Chart 4b


How are operators positioned from a liquidity standpoint?

Operators have more than 12 months of liquidity, including cash and revolving credit lines, to cover monthly fixed expenses (our estimate), assuming zero revenue. Operators' monthly burn rate consists of operating expenses, debt service costs, maintenance expenses, and development expenditures (where applicable).

Operators are lowering costs by implementing pay cuts, initiating paid and unpaid leave, shutting down costly entertainment events, and conserving electricity where possible. However, it's difficult to cut workers in Macau given rigid local employment rules. Officials may also view aggressive staff cuts unfavorably, just as the licenses of casino operators come up for renewal.

Table 4

Liquidity Of Select Gaming Operators With Exposure To Macau
As of March 31, 2020. Liquidity (mil. US$) Estimated monthly burn rate (mil. US$) Estimated months of liquidity

Melco Resorts (Macau) Ltd.

2,763 150 18
MGM China Holdings Ltd. 805 64 13

Sands China Ltd.

2,831 200 14

Wynn Macau Ltd.

1,874 102 18
Liquidity defined as revolver availability and cash on the balance sheet. Estimated monthly burn rate includes operating expenses, debt service, maintenance capital spending and development capex, if applicable. Mil.--Million. Source: S&P Global Ratings.
What are the credit implications for Macau's rated gaming operators?

All of our rated Macau gaming operators are on CreditWatch with negative implications. This reflects our expectation they will experience significantly less revenue and cash flow this year that could cause us to lower ratings over the next 12 months or so. This holds true even if companies had low leverage and a decent liquidity cushion entering this crisis, at the start of the year.

In resolving the CreditWatch status on operators, we plan to gauge how our updated Macau gaming revenue forecast may affect their revenue and cash flow in Macau. For operators with broad portfolios outside of Macau, we also will evaluate how weaker economic conditions, continued social distancing measures, and lingering travel fears may affect consumer discretionary spending at their other properties in 2020 and 2021.

We will assess how quickly the EBITDA and cash flow of each entity might recover later this year and next year, as well as how quickly each company's credit measures may recover following a sharp deterioration in 2020. We may lower ratings if we no longer believe an operator will recover by the end of 2021, in a manner that puts credit measures within the thresholds we have set for our ratings on the firms, we may lower ratings.

S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak about midyear, and we are using this assumption in assessing the economic and credit implications. We believe the measures adopted to contain COVID-19 have pushed the global economy into recession (see our macroeconomic and credit updates here: As the situation evolves, we will update our assumptions and estimates accordingly.

Table 5

Rating Actions On Macau Gaming Operators In Year To Date
To From

Melco Resorts (Macau) Ltd.

BB/Watch Neg/-- BB/Stable/--

MGM Resorts International

BB-/Watch Neg/-- BB-/Stable/--
Las Vegas Sands Corp. BBB-/Watch Neg/-- BBB-/Stable/--

Studio City Co. Ltd.

BB-/Watch Neg/-- BB-/Stable/--

Wynn Resorts Ltd.*

BB-/Watch Neg/-- BB/Stable/--
*Two rating actions have been taken. Source: S&P Global Ratings.

Related Research

  • Credit Conditions Asia-Pacific: COVID-19: Flatter Growth, Tougher Recovery, April 22, 2020
  • Wynn Resorts Finance LLC's Proposed $350 Million Senior Notes Rated 'BB-' and Placed on CreditWatch Negative, April 7, 2020
  • Melco Resorts And Studio City Ratings Remain On CreditWatch Negative Amid Continued Travel Restrictions, April 20, 2020
  • Asia-Pacific Gaming Takes Severe Knock From COVID-19, March 27, 2020
  • Various Ratings Actions Taken In Gaming Sectors, March 20, 2020

This report does not constitute a rating action.

Primary Credit Analyst:Sandy Lim, CFA, Hong Kong (852) 2533-3578;
Secondary Contacts:Melissa A Long, New York (1) 212-438-3886;
Ava Chang, Hong Kong (852) 2533-3530;

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