Moody’s Downgrades Macao to Aa3 with Negative Outlook (Moody’s)
Moody’s Investors Service has downgraded Macao’s government issuer rating to Aa3 from Aa2 and assigned a negative outlook. Moody’s also lowered Macao’s long-term foreign currency bond ceiling to Aa2 from Aaa and its long-term foreign currency deposit ceiling to Aa3 from Aa2. The short-term foreign currency bond and deposit ceilings remain unchanged at Prime -1. Macao’s long-term local currency country risk ceilings were lowered to Aa2 from Aaa.
The rating downgrade reflects Moody’s view that the sharp weakening in the economy, with growth remaining highly volatile, coupled with the limited policy response to the fall in gaming revenues, leave Macao’s credit profile weaker than those of Aa2 peers. The negative outlook reflects uncertainties surrounding the trajectory for growth, the policy response, and the consequences for Macao’s fiscal and external buffers.
Moody’s noted that the gaming sector accounts for 58.3% of economic output, about three-fourths of its service exports and three-quarters of total fiscal revenues. Government strategies to diversify the economy center primarily around broadening Macao’s gaming and tourism market. This still leaves growth volatile and susceptible to shifts in external demand.
The ratings action also noted:
Our expectation of a decrease in gaming revenues this year and next suggests that Macao’s economic, fiscal and external metrics will likely weaken considerably from prior robust trends. This puts overall sovereign credit risk at levels more consistent with a Aa3 rating.
We expect the economy will continue to contract during 2016 and 2017, although the pace of decline may ease. Over the medium term, annual real GDP growth should stabilize at 1.5% to 2.0%.
To read the whole ratings action, Moody’s downgrades Macao’s government issuer rating to Aa3 with negative outlook, concluding review for downgrade, go to the website of Moody’s. In addition, check out our Macau Casino stock list page.
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