MGM Resorts and MGM China: Global expansion and a promising outlook

Fitch Ratings, a globally recognized credit rating agency, has recently assigned a first-time “BB” to both MGM Resorts International and its Macau subsidiary, MGM China Holdings Limited. This rating is one notch higher than that of other rating agencies such as S&P and Moody’s. The rating reflects MGM’s robust liquidity position, scale, and global diversification, which are considered key assets.

Strong rebound in Macau

Fitch pointed out the continued rebound in Macau for both of MGM’s properties – MGM Cotai and MGM Macau – as a significant factor supporting further near-term growth.  The recovery in Macau has been strong following the removal of strict coronavirus policies in late 2022. Mass market baccarat was 109 percent of 2019 levels in 4Q23, while the overall market was at 75 percent. The lower overall percentage is due to changes in VIP regulations that have caused a material, and potentially permanent, change in the level of gaming revenues from that customer segment.

However, MGM focuses primarily on the mass market as opposed to VIP, and its market share has grown to over 15 percent in 2023 from 9 percent, as it benefits from receiving approximately 200 new tables under the concession and the continued ramp up of MGM Cotai. Customer reinvestment rates increased in 2023 as more operators focused on the mass market given the decline in the VIP market, but MGM China’s EBITDAR margins have not seen a material impact.

Global diversification and future plans

MGM’s two properties in Macau provide “global diversification benefits” and exposure to a market with favourable long-term growth trends. Future global diversification will come from the company’s Osaka resort project in Japan, its Dubai Porto Island development, and a potential license in the New York City market. However, Fitch warned that the company’s active development plans in Japan, Dubai, and potentially New York, and related cost pressures could affect financial flexibility during weaker economic conditions. Despite this, Fitch provided a Stable Outlook, reflecting the company’s expectation that MGM’s leverage will remain stable and that liquidity is sufficient to fund future growth opportunities. In conclusion, the recent Fitch rating of MGM Resorts and MGM China is a welcomed view on MGM, given rating agencies’ varying treatments of lease-equivalent debt. The rating reflects MGM’s strong position in the industry and its promising future amidst global expansion plan.