Moody’s has indicated that an upgrade for SJM Holdings Ltd’s ratings is unlikely at this time. This conclusion is based on the negative outlook assigned to the Macau gaming operator. The details were part of a report released on Monday, where Moody’s assigned a ‘B1’ rating to upcoming senior unsecured U.S. dollar notes to be issued by SJM International Ltd and guaranteed by SJM Holdings.
The funds from these notes are intended for refinancing existing debt and supporting general corporate needs. In September, Moody’s confirmed SJM Holdings’ corporate family rating (CFR) as ‘Ba3’ but changed the outlook to negative from stable.
Financial Analysis and Outlook
Stephanie Lau, a vice president at Moody’s, commented on SJM Holdings, highlighting its strong presence in Macau’s gaming sector. She noted the city’s positive long-term growth potential. However, the ratings reflect challenges stemming from SJM’s high financial leverage and its reliance on the Macau market, which is sensitive to policy changes in the region.
Debt and Earnings Projections
Moody’s projects that SJM’s adjusted debt to earnings before interest, taxation, depreciation, and amortisation (EBITDA) could increase to between 8.3 and 8.7 times by 2025. This projection follows weakened earnings in the third quarter of 2025 and the debt-financed purchase of L’Arc Hotel.
The rating agency anticipates an improvement in financial leverage, expecting it to drop to around 6.0 times in 2026. This anticipated decrease is attributed to higher EBITDA and a slight reduction in debt. Contributing to this growth are the reallocations of satellite casino tables to SJM’s owned properties and the new acquisition of L’Arc Hotel.
Risks and Challenges
Despite optimistic projections, Moody’s cautions about the weaknesses in the projected leverage ratio for the Ba3 rating category. The agency highlighted risks related to organic earnings performance and customer retention, as well as the effectiveness of earnings from satellite table reallocations.
Liquidity and Financial Health
Moody’s expressed confidence in SJM Holdings’ liquidity status. The agency expects that liquid sources from the proposed senior U.S. dollar unsecured notes, coupled with cash reserves of HKD 2.1 billion (approximately US$269.7 million) as of June 2025, will sufficiently meet cash requirements and upcoming debts in the next 12 to 18 months.
The ‘B1’ rating for the new notes is positioned one notch below the CF rating due to the significant share of secured bank loans and subsidiary liabilities in SJM’s financial structure. These obligations have precedence over the priority of the senior unsecured claims at the holding company level in case of default.
Potential for Future Outlook Changes
While an upgrade of SJM Holdings’ ratings currently appears improbable, Moody’s could reassess the outlook as stable if the company demonstrates improved earnings, reduces its debt, and maintains adequate liquidity. Key credit metrics would include an adjusted debt/EBITDA ratio trending towards 5.5 times or lower over a sustained period.
