Sands China debt manageable despite earnings pressure: analysts

Sands China Ltd’s debt levels remain manageable despite pressure on its Macau casino earnings, says CreditSights. Separately, Fitch Ratings and S&P Global Ratings said in recent reports that they expect the company’s fresh offering of notes to leave leverage broadly unchanged. The Macau casino firm confirmed in a Wednesday filing that it had priced US$1.0 billion in senior unsecured notes: US$700 million carrying a 6.4-percent annual coupon and maturing in January 2032, and US$300 million carrying a 6.7-percent coupon and due in November 2033. Sands China is a subsidiary of U.S.-based Las Vegas Sands Corp. Its Macau portfolio includes The Venetian Macao (pictured), The Londoner Macao, The Parisian Macao and the Plaza Macao in Cotai, as well as Sands Macao on the city’s peninsula. CreditSights said in a Tuesday memo that growth in gaming volumes at Sands China and an improvement in market share offered some reassurance after a challenging third quarter, when softer high-end demand and an unfavourable mass-market win rate weighed on the company’s earnings. The research firm calculated Sands China’s gross and net leverage at approximately 2.8 times and 2.3 times, respectively, at the end of September. Gross leverage was broadly unchanged quarter-on-quarter, while net leverage improved slightly as the company’s cash balance increased. Sands China ended the third quarter with approximately US$6.3 billion in total debt and US$1.1 billion in cash, putting net debt at about US$5.2 billion, according to CreditSights. The institution also welcomed the company’s move to address its near-term debt maturity early and repay outstanding revolving credit facility borrowings. Net proceeds of US$989 million from the exercise, together with cash on hand, will redeem US$700 million of notes due in March 2027, repay revolving borrowings and support general corporate purposes, including capital expenditure, Sands China stated. In separate memos on Tuesday, Fitch and S&P each assigned a ‘BBB’ rating to the proposed notes by Sands China. S&P said the refinancing would push the casino operator’s next notes maturity to August 2028, when US$1.9 billion of notes fall due. Fitch expected Sands China’s US$2.5-billion revolving facility to be fully available following repayment using the offering proceeds. It considered the company’s liquidity, alongside access to capital markets, sufficient to meet near-term needs. Regarding the company’s operations, CreditSights noted that Sands China’s third-quarter adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) fell 12 percent year-on-year to US$529 million. Its EBITDA margin narrowed to 27.3 percent, down 4.2 percentage points from a year earlier. The research firm however notes that gaming volumes increased across all of Sands China’s segments. CreditSights estimated Sands China’s overall Macau gaming market share at 25.5 percent, up from 23.7 percent in the preceding quarter and 23.5 percent a year earlier. Fitch said the operator’s scale, competitive position and cash flow generation supported its credit profile, although continued development spending and weakness in Chinese customers’ gaming expenditure remained constraints. It expected leverage to decline modestly over time, mainly through EBITDA growth. Investment in the Macau portfolio will also bring further disruption. CreditSights said The Venetian Macao’s room renovation was expected to keep approximately 500 rooms out of service on average through the fourth quarter of 2027, with the refreshed property due to be reintroduced by Chinese New Year 2028. On a conference call to discuss third-quarter earnings, Sands China’s management said the company had “received very strong feedback from the customers who have experienced the new suites”, after circa 600 units of The Venetian Macao had already been released to the market.