Singapore, May 22, 2019 -- Moody's Investors Service ("Moody's") has today
affirmed Macao's local and foreign currency issuer rating at Aa3
and maintained the stable outlook.
The key drivers of the rating affirmation are:
• Large and growing fiscal and external buffers will continue to
provide Macao significant capacity to counter future shocks;
• Further progress on diversification toward non-gaming activities
will, over time, support less volatile GDP growth
• Macao will remain susceptible to potential economic and policy
measures from China that pose risks to its gaming and tourism sectors
The decision to maintain the stable outlook reflects balanced credit risks.
On the upside, robust growth on the back of increasing gaming and
tourism receipts, supported by the recent opening of the Hong Kong-Zhuhai-Macao
bridge, may raise Macao's fiscal and foreign exchange reserve
buffers even more than Moody's currently expects. Moreover,
diversification into mass-market gaming and non-gaming tourism
may be more rapid than currently assumed by Moody's, lowering
the Special Administrative Region's exposure to shocks to the VIP
gaming sector. On the downside, diversification could prove
less effective leaving Macao exposed to shocks, particularly those
related to economic, financial and policy developments on the mainland.
Macao's local currency bond and deposit ceilings are unchanged at
Aa2. The long-term foreign currency bond ceiling is unchanged
at Aa2. The long-term foreign currency bank deposit ceiling
is unchanged at Aa3. The foreign currency short-term bond
and deposit ceilings are also unchanged at Prime-1.
RATINGS RATIONALE
RATIONALE FOR THE RATING AFFIRMATION AT Aa3
LARGE AND GROWING FISCAL AND EXTERNAL BUFFERS PROVIDE SIGNIFICANT ROOM
TO COUNTER SHOCKS
Macao's large and growing fiscal and external buffers offer it significant
capacity to withstand potential shocks.
Macao's persistent fiscal surpluses will continue to support the
accumulation of large fiscal reserves, particularly in the absence
of government debt. Fiscal reserve capital amounted to MOP566 billion
(around $70 billion) as at end-March 2019, equal to
about seven years' worth of public expenditure for 2018 or about 130%
of 2018 GDP. Even through the economic downturn from 2014-2016,
driven by a sharp decline in the gaming sector, Macao's fiscal
and foreign reserves increased. Moody's expects ongoing growth
in gaming and associated tax revenue to support further large fiscal surpluses
above 10% of GDP in the next two years, indicating the government
will continue to add to its stock of financial assets.
Macao's external finances will also strengthen as persistently strong
current account surpluses support the build-up of reserves.
Moody's forecasts the current account surplus to remain above 30%
of GDP in 2019 and 2020, supported by increasing tourist arrivals
and gaming revenues. New hotel and casino developments in the pipeline
will bolster foreign direct investment inflows, although at lower
levels than between the 2010-2014 period, when the gaming
industry expanded very strongly. Moody's expects foreign
exchange reserves will remain around 35% of GDP in the next two
years.
INCREASING SHIFT TO NON-GAMING ACTIVITIES WILL, OVER TIME,
SUPPORT LESS VOLATILE GDP GROWH
Progress on the government's diversification policies, including
the ongoing shift toward non-gaming tourism and mass-market
gaming from high-end VIP gaming, are starting to bear fruit
and will, over time, ensure less volatile GDP growth.
Rising incomes in China and Macao's proximity to the mainland will continue
to support demand for Macao's well-established gaming and tourism
market, even in the face of growing competition from other parts
of Asia.
The ongoing shift to mass-market gaming, from VIP gaming,
will support the profitability of gaming operators and enhance the resilience
of the gaming sector. Mass-market gaming revenue rose to
about 51% of total gaming revenue in the first quarter of 2019,
up from around 34% in 2013.
Rising non-resident spending in areas such as shopping, accommodation
and food and drink demonstrates continued growth in nongaming sectors.
Moody's expects government policies focused on encouraging gaming
operators to add more services in leisure, sports and recreation,
conventions, exhibitions and cultural experiences will attract more
mass-market visitors and expand revenue from non-gaming
tourism.
Regional development initiatives such as the Greater Bay Area (GBA) that
links Macao, Hong Kong and China will support the government's
ongoing diversification plans. Reflecting this strategy,
the Hong Kong-Zhuhai-Macao Bridge, which opened in
October 2018, is making Macao more accessible for international
visitors via Hong Kong's airport and holidaymakers from China's
Guangdong province. Visitor arrivals by land rose sharply in the
last quarter of 2018 to 6.9 million, an almost 40%
year-on-year increase over the same period in 2017,
and more visitors are coming from outside of China. Over time,
greater movement of people and goods inside the GBA will facilitate expansion
in Macao's tourism, trade and meetings and conventions industries.
MACAO'S CREDIT PROFILE WILL REMAIN VULNERABLE TO ECONOMIC AND POLICY
DEVELOPMENTS IN CHINA
Macao's GDP growth is closely linked to growth in visitor arrivals
from China. As a result, Macao remains exposed to shocks
related to economic, financial and policy developments in China.
Should China's growth and incomes slow more sharply than Moody's
currently expects, growth in non-gaming and gaming tourist
volumes and revenues could slow markedly or become more volatile.
Policy measures in China that undermine Chinese demand for Macao's
gaming and tourism would also significantly hinder the Special Administrative
Region's economy, as evidenced between 2014-16.
The potential for escalating trade tensions between the US and China could
pose further downside risks to investments by US gaming operators in Macao
if they are targeted by retaliatory measures. Moody's consider
these risks as low probability events that would have a high credit impact
on Macao.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects balanced credit risks.
On the upside, robust growth on the back of increasing gaming and
tourism receipts, supported by the recent opening of the Hong Kong-Zhuhai-Macao
bridge, may raise Macao's fiscal and foreign exchange reserve
buffers even more than Moody's currently expects. Moreover,
diversification into mass-market gaming and non-gaming tourism
may be more rapid than currently assumed by Moody's, lowering
the Special Administrative Region's exposure to shocks to the VIP
gaming sector. On the downside, diversification could prove
less effective leaving Macao exposed to shocks, particularly those
related to economic, financial and policy developments on the mainland.
WHAT COULD CHANGE THE RATING UP
Moody's would consider upgrading the rating upon evidence that the
government's diversification plans are delivering stronger and durably
more stable economic growth than the rating agency currently projects.
That could stem from material and sustained progress on initiatives that
support growth in non-gaming tourism offerings and further builds
Macao's resilience to shocks.
WHAT COULD CHANGE THE RATING DOWN
Moody's would consider downgrading the rating if Macao endured a
prolonged economic downturn that led to a significant and lasting erosion
of fiscal and external buffers, in part because of an ineffective
policy response.
GDP per capita (PPP basis, US$): 110,592 (2017
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 9.7% (2017 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 2% (2017
Actual)
Gen. Gov. Financial Balance/GDP: 11.1%
(2017 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 33% (2017 Actual) (also known
as External Balance)
External debt/GDP: 91.6% (2017 Actual)
Level of economic development: High level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 16 May 2019, a rating committee was called to discuss the rating
of the Macao, Government of. The main points raised during
the discussion were: The issuer's economic fundamentals, including
its economic strength, have materially increased. The issuer's
institutional strength/ framework, have not materially changed.
The issuer's fiscal or financial strength, including its debt profile,
has not materially changed. The issuer's susceptibility to
event risks have not materially changed.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in November 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Matthew Circosta
Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
