Fitch maintains Macau “AA-” rating

2013-5-24

From：Macau Daily Times

Credit rating agency Fitch Ratings has announced that it will give the Macau Special Administrative Region (MSAR)’s long term foreign and local currency issuer default ratings of “AA-”.
According to a press release issued on Wednesday by the agency, “Macau’s ratings are underpinned by its robust fiscal and external finances, as the gaming-driven economic boom brings in large tourism receipts and budget surpluses. However, heavy reliance on casino-related activities and exposure to China country risk are vulnerabilities for the sovereign.”
The global rating agency, headquartered in New York and London, estimates that Macau’s sovereign net foreign assets (SNFA) at the end of 2012 were USD35 billion, equivalent to 81% of GDP or 70% of current external receipts (CXR). The official international reserves were equivalent to 6.9 months of current external payments (CXP) cover, and 35.4% of broad money, at the end of 2012.
The agency notes that “Macau has a track record of fiscal prudence” and the “government enjoys a debt-free status”. As a result, the region achieved substantial budget surpluses, averaging 15.4% of GDP from 2003 to 2012. Fitch highlights that this has enabled the accumulation of a large pool of fiscal reserves, which are expected to reach MOP237b, or 59% of GDP, in 2013.
Fitch highlights concerns surrounding concentration risk, mentioning that “the economy and public finances have become increasingly tied to gaming-sector performance. Revenue from gaming accounted for 87.7% of GDP, while the government is estimated to have relied on this sector for 76.5% of its revenue, in 2012.”
Most of the tourists that visit the region come from China and Hong Kong, a fact that, according to Fitch, “leaves Macau highly exposed to China’s country risk, as well as the mainland’s policy on gaming and tourism. Nonetheless, the agency recognizes the significant benefits flowing from increasing economic integration with the fast-growing mainland China.”
The rating analysis also considers that the “sharp rises in housing prices, spurred by prolonged low-interest rates and strong investment demand, have raised concern over housing affordability.” But it is written that “the authorities have implemented a number of property cooling measures, leading to early signs of stabilization.”
Nevertheless, “China-related risks are rising for the banking sector.” Fitch concludes: “Macau’s banking system is predominantly foreign owned, with over 70% of assets related to Chinese parents. Mainland exposures by Macau banks expanded rapidly – 65% in 2012, although they remain smaller (16% of total assets) than that of Hong Kong (25%). Risks associated with this lending, including regulatory risks and collateral enforceability, remain a concern.”

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