Macau’s casino industry faces a delayed recovery from the impact of a citywide lockdown and a higher interest rate environment, according to two global rating companies. Gaming operators in Macau face low tourist arrivals because of strict coronavirus travel restrictions and, most recently, business closures, according to a report published by Moody’s Investors Service on Thursday. Macau shut its casinos for the first time in two years on Monday, as the gambling hub suspended almost all business activities for a week in a bid to control a rising number of Covid-19 infections caused by the Omicron variant. Macau’s gambling industry has already been hit hard by economic disruptions caused by the coronavirus pandemic, with gaming revenues falling 62 per cent year on year to 2.5 billion patacas (US$306 million) in June. In contrast, revenues in June 2019 totalled 23.8 billion patacas. Moody’s expects the city’s gross gaming revenue (GGR) for the mass segment, the key contributor to gaming operators’ profits and cash flow, to remain weak at only 30 per cent of 2019 levels this year, before improving to 70 per cent in 2023. “A full recovery in the mass segment is likely only in 2024, which will lead to a significant improvement in operators’ credit metrics,” Gloria Tsuen, a senior credit officer at Moody’s, said in the report. A slower-than-expected GGR recovery, likely because of continued travel restrictions, is a key risk, especially for companies that operate solely in Macau, she added. “The surge in Covid-19 cases and strict control measures in Macau and mainland China have limited visitations in Macau, and we believe this disruption will likely delay the recovery for Macau not only for this year, but also next year,” Aras Poon, associate director at S&P Global Ratings, said in a webinar on Thursday. Last week, S&P lowered Macau’s GGR forecast for the year to between only 20 to 30 per cent of 2019 levels, from its previous estimate of between 30 and 40 per cent. In 2023, the agency expects GGR to recover to 50 to 70 per cent of 2019 levels, compared to an earlier forecast of 80 per cent. Macau makes the biggest reform in gambling laws in two decades On July 11, Morningstar also lowered its GGR forecasts for 2022 and 2023 to mid-20 per cent and 60 per cent of 2019 levels, respectively, compared to its previous estimates of 40 and 70 per cent, due to Monday’s closure of casinos. The citywide lockdown means that it might take a bit longer for a recovery at Macau’s casino operators, said Ben Lee, a consultant at iGamiX Management & Consulting in Macau. “With the [Covid-19] waves that we’ve seen recently in China and our continuing open border to China, it was to an extent inevitable that we would get transmission. Looking forward, hopefully we can get this under control as quickly as possible,” Lee said. Macau’s first Covid-19 lockdown frustrates and confuses residents A higher interest rate environment could further slow the recovery of Macau’s gaming operators, Melissa Long, director of corporate ratings at S&P, told the webinar. The US consumer price index rose 9.1 per cent year on year in June, its fastest pace of inflation since November 1981. This has spurred expectations that the US Federal Reserve could raise interest rates by as much as a full percentage point later this month, the highest rate hike in 40 years. The Bank of Canada also raised its interest rate by 100 basis points on Wednesday. “Higher interest rates are going to slow or lower cash flow generated, and so it’s going to slow the recovery and credit measures” of casino operators in Macau, said Long. The higher interest rate environment means that financing costs for Macau’s casino operators may go up, but “the financing costs they may incur is nothing compared to the potential rewards that are represented by the world’s largest gaming hub”, said iGamiX’s Lee.