S'pore's casinos to face increased regional competition

Fitch Ratings expects Singapore's integrated resort casinos casinos - Marina Bay Sands (MBS) and Resorts World Sentosa (RWS) - to face increased regional competition.

In its statement issued on Friday, the ratings agency said other factors include potential changes to gaming policies which would weigh on their medium-term growth and profitability outlook.

However, Fitch said the sharp contraction in revenue from VIP clients in the second-half of 2014 would be temporary, and that recovery in this segment should provide some respite for MBS and RWS in 2015.

"Growth in Singapore gaming revenue has stalled, and is likely to contract slightly in 2014 with macroeconomic and political factors in China being the principal cause.

"A slowdown in China's economic growth, recent corruption crackdown, and credit tightening have had a particularly strong impact on Singapore's casinos. The VIP business, which is mostly Chinese, accounts for roughly half of total gaming revenue at MBS and RWS," it said.

On a more positive note, Fitch expects VIP numbers to improve in the latter part of 2015 and it expects tightening restrictions within China are temporary.

It said the ability of Singapore's gaming industry to tap into a Chinese recovery and the broader growth will be challenged in the longer term, especially as it faces increased regional competition from new casinos in the Philippines, Macau and, potentially, Japan.

Fitch highlighted that the Philippines will have three large-scale casino resorts by the end of 2014, and several major new casino projects are being built in Macau.

Political momentum to legalise casinos is the strongest it has ever been in Japan, while Sri Lanka, Vietnam, Cambodia, South Korea, Russia and Australia are all likely to open new casinos by 2020.

"Regulatory risks could also add to the challenges for Singapore casinos. Since granting its first gaming licences in 2006, Singapore has limited the casinos' ability to expand, by imposing a S$100 entrance fee on Singapore citizens and permanent residents, and restricting their advertising and promotional scope locally," it said.

Fitch noted that political momentum was unlikely to shift towards greater liberalisation, at least in the short term, with recent parliamentary debates focusing on gaming policy.

By law, Singapore's accommodating gaming tax is locked in at least until 2022; however, the tax rate could be revisited as the government considers granting additional licences when the duopoly period ends in 2017.

The rating agency said the government has been tight-lipped on the subject, but recent political discussions suggest that it is unlikely that more gaming licences would be granted.

"However, it remains a potential risk for Singapore's existing casino operators, and the market remains very attractive to new entrants despite the potential for more regional competition," it said.