Macau Sees Strong Demand For Yuan-Backed Bonds as Territory Looks to Diversify Economy

Posted on: July 6, 2019, 04:38h. 

Last updated on: July 6, 2019, 04:38h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

China’s Finance Ministry sold about $247 million worth of yuan-denominated bonds in Macau on Friday as part of an ongoing effort to diversify the territory’s economy away from casino gaming.

The Venetian in Macau where officials are looking to expand the local economy. (Image: Booking.com)

The July 5 bond sale is the first installment of what is expected to be a multi-part process, also known as tranches, that will see China sell more than $291 million of sovereign debt in its only region where gambling is legal.

Demand for the bonds was robust as the issue was 3.2 times oversubscribed, according to Reuters. That means investors wanted more than triple the number of available bonds. The debt sold in Macau on Friday had a coupon of 3.05 percent, meaning buyers of the issue receive $305 per year for every $10,000 invested.

Macau has an AA credit rating from Fitch and an Aa3 rating from Moody’s Investors Service, both of which are well into the investment-grade spectrum. Standard & Poor’s has an A+ sovereign rating on China, the world’s second-largest economy. The higher a company’s or country’s credit rating, the lower yields are on its debt because bond investors believe default is less likely with high-grade issuers.

More Coming

The ministry said it will sell a 300 million yuan, 2-year retail portion at a 3.3 percent coupon starting on Friday,” reports Reuters. “Subscription to that bond will be open until July 19, according to Refinitiv IFR.”

Macau depends on the gaming industry for 80 percent of government revenue. Last year, gross gaming revenue (GGR) at the world’s top gambling hub was $37.8 billion, but Macau is looking for ways to bolster its economic diversity.

Last month, it was revealed that the peninsula in the South China Sea is considering launching its own stock market. China is already home to three of the world’s eight largest equity bourses by market capitalization – the Shanghai, Hong Kong and Shenzhen stock exchanges.

Global financial bodies are also making recommendations to aid in Madcau’s quest for a broader economy that is less reliant on gaming. Last year, the International Monetary Fund (IMF) suggested that policymakers push gaming operators there to develop more hotels and business centers that do not feature casinos.

Las Vegas Sands, MGM Resorts, Wynn Resorts, Melco Resorts, Galaxy Entertainment, and SJM Holdings are the six license holders in Macau.

Economic Concerns

In June, Macau’s GGR jumped almost six percent to $2.96 billion, a second straight monthly increase and one that easily topped analysts’ estimates. However, signs could be emerging that the gambling mecca’s broader economy is starting to slow.

The IMF expects Macau to post GDP growth of 4.3 percent this year and 4.2 percent in 2020, down from 4.7 percent in 2018.

The real estate market is thawing, too. In the first quarter, prices on residential real estate transactions in Macau rose just 1.09 percent, the most sluggish growth rate in almost three years and those prices actually declined on a quarter-over-quarter basis.