Gaming revenue accounted for over half of Macau's gross domestic product before the pandemic. Macau gambling revenue surged 82.5% year-on-year to 11.6 billion patacas ($1.4 billion) in January, after it had nearly half a million visitor arrivals over the week-long Lunar New Year holiday.
The outlook could improve further, analysts said, given the surge of visitors had raised the "table drop" - the money exchanged for chips at each gaming table - back to 2019 levels before COVID hit China. The award of new 10-year licences to incumbent operators in November also removed a major risk that had concerned investors, said Christy Lee, Asian credit portfolio manager at AXA Investment Managers.
"We have turned positive on the sector around late last year to early 2023," she said. "Their bonds are good for holding for a return."
Some of the beaten down bonds are heading close to their $1 par value.
Wynn Macau's $1 billion high-yield bond that pays 5.125% and matures in 2029, had fallen to 52 cents to the dollar in October and is now at 79 cents. Spreads over comparable U.S. Treasuries have narrowed to 526 basis points (bps) from a record high of 1,127 (bps) in October, reflecting the decline in risk premium.
That compares with a wider spread of 1,352 bps on the ICE
BofA Asian dollar high yield corporate China issuers index .
The casino operators' bonds are in demand as investors look
for exposure to Chinese junk debt but seek to avoid property
developers' bonds. Those bonds account for a large chunk of the
high-yield market and the developers' fortunes remain under a
cloud after a crackdown by Beijing.
"We do expect some additional spread compression as Macau
demonstrates a sustained ability to return to positive and
healthy earnings generation amid a revival of visitation," said
James Goldstein, a senior analyst at CreditSights.
Among the three U.S. casino groups that operate in Macau,
CreditSights has an "outperform" rating on Wynn Macau bonds due
to higher yields.
Sands China's 10-year bond, rated at investment
grade by Moody's Investors Service and Fitch, trades at a yield
of 6.59%, compared with 9.3% on Wynn Macau's bond of the same
maturity.
(Reporting by Georgina Lee; Editing by Vidya Ranganathan and
Jamie Freed)
