Gambling in Macau

Brighter prospects tempt MGM China to sell $1.25b bonds

MGM China, which operates casinos in Macau, will issue two US dollar notes totaling $1.25 billion.
MGM Cotai, one of MGM China's casino resorts in Macau
MGM Cotai, one of MGM China's casino resorts in Macau

MGM China Holdings plans to issue $1.25 billion two-part US dollar senior notes amidst brightening prospects for itself and Macau, where it owns two casino resorts.

On May 16, the Hong Kong-listed firm plans to sell 5-year paper that is not callable for 2 years, and 7-year bonds which are not callable for 3 years, according to a term sheet seen by FinanceAsia. The Regulation S and Rule 144A senior fixed-rate notes might price as early as the US morning of May 8.

Price guidance for the two tranches are 5.5% to 5.75% and 6.0% to 6.25% respectively.

The bonds have non-investment grade ratings of BB, Ba3 and BB- from Fitch Ratings, Moody’s and S&P Global.  

For comparison, the current yield of on the 7-year US dollar bond of Wynn Macau, another Hong Kong-listed operator of casinos in Macau, is 5.25%. The $600 million paper, which matures in October 2024, has a coupon of 4.88% and a lower credit rating of B1 and B+ from Moody's and S&P. 

Despite the non-investment grade of MGM China’s bonds, a recent Moody’s report said: “The outlook is positive. The affirmations reflect Moody's view that credit metrics will improve over the next 12 to 18 months.”

A Fitch report at the start of May predicted flat to low single-digit growth in Macau’s gaming revenues this year. MGM China owns and operates two casino hotel resorts in the former Portuguese territory: MGM Macau and MGM Cotai.

“Fitch's favorable long-term view on Macau is supported by an expanding middle class in China and infrastructure development in and around Macau,” said the ratings agency.

MGM China’s business received a boost in mid-March, when its gaming sub-concession in Macau was extended from March 2020 to June 2022. Despite this positive development, MGM China is not taking any chances with its bonds. They contain a 100% put option in case of possible negative events like termination of its gaming license.

In the first quarter, revenues from MGM China’s two resorts rose 23.5% year-on-year to HK$5.76 billion ($734 million), while total adjusted ebitda surged 26.9% to HK$1.62 billion.

MGM China’s ebitda in the first quarter was 6% above consensus forecasts and, according to a recent report from JP Morgan, its stock has more upside, thanks to the broadly upbeat sentiment in Macau’s gaming sector. The US bank, however, is unsure whether MGM China’s positive first quarter results can be sustained, so it has a "neutral" rating on the company.

MGM China’s Macau resorts contribute 20% to the consolidated ebitda of MGM Resorts International, a gaming, hospitality and entertainment company listed on the New York Stock Exchange which itself owns 56% of MGM China.

“MGM China is integral to MGM Resorts’ operations and long-term strategy to expand internationally,” noted a recent S&P report.

The ratings agency expects MGM Resorts’ leverage to improve to the low 4-times area in 2020 from the high 4-times area in 2019. On the other hand, Fitch reckons that MGM Resorts’ credit profile is improving, and forecasts that it will deleverage below 5.0-times on a gross basis by next year.

MGM China said that it intends to use the net proceeds of its bonds to repay outstanding debt under its revolving credit facility and a term loan facility under the MGM China Credit Facility, as well as for general corporate purposes.

Joint global coordinates are Bank of America Merrill Lynch and Deutsche Bank, while the joint bookrunners are Bank of China, Bank of Communications, Barclays, BNP Paribas, ICBC (Macau), JP Morgan and SMBC Nikko. 

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