Reuters: US Dollar Report: FITCH PUBLISHES MACAO's 'AA-' RATINGS; OUTLOOK STABLE

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FITCH PUBLISHES MACAO's 'AA-' RATINGS; OUTLOOK STABLE May 22nd 2013, 08:25 Wed May 22, 2013 4:25am EDT HONG KONG, May 22 (Fitch) Fitch Ratings has published Macao's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'AA-'. The Outlooks are Stable. The agency has also published its Country Ceiling of 'AA+' and its Short-Term Foreign-Currency IDR of 'F1+'. Key Rating Drivers Macao'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. External finances are a rating strength. Fitch estimates Macao's sovereign net foreign assets (SNFA) at end-2012 were USD35bn, equivalent to 81% of GDP or 70% of current external receipts (CXR). Macao's official international reserves - which have benefited from sustained current account surpluses - were equivalent to 6.9 months of current external payments (CXP) cover, and 35.4% of broad money, at end-2012. Macao has a track record of fiscal prudence. The general government enjoys a debt-free status. Macao achieved substantial budget surpluses, averaging 15.4% of GDP from 2003 to 2012, significantly outpacing its 'AA' peer median of -0.1%. This has enabled the accumulation of a large pool of fiscal reserves, which are expected to reach MOP237bn, or 59% of GDP, in 2013. Concentration risk weighs on the ratings of Macao. 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. As tourists from China and Hong Kong make up the bulk of tourist arrivals, this leaves Macao highly exposed to China's country risk, as well the mainland's policy on gaming and tourism. Nonetheless, the agency recognises the significant benefits flowing from increasing economic integration with the fast-growing mainland China. Sharp rises in housing prices, spurred by prolonged low-interest rates and strong investment demand, have raised concern over housing affordability. The authorities have implemented a number of property cooling measures, leading to early signs of stabilisation. Adequate household debt-servicing capacity should partially mitigate the credit risks associated with banks' exposure to the property sector. China-related risks are rising for the banking sector. Macao's banking system is predominantly foreign owned, with over 70% of assets related to Chinese parents. Mainland exposures by Macao banks expanded rapidly - 65% yoy 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. Rating Sensitivities The main factors that, individually or collectively, could trigger positive rating action: -A significant improvement in China's economic- and financial-sector risks The main factors that individually, or collectively, could trigger negative rating action: -Severe economic shock from China could be negative for the ratings, given the close economic and financial linkages -A sharp deterioration in financial sector stability given increasing risks from sharply rising property prices and mainland China exposures Key Assumptions -Macao's economy remains highly concentrated in the gaming industry -China will have a smooth economic rebalancing process and avoid economic hard-landing, as Macao's economy and its gaming industry are highly susceptible to China's economic performance -No substantial changes in China's policy towards gaming and tourism that could have a serious impact on Macao, as Fitch views this possibility as highly unlikely in the near- to medium-term. Contact: Primary Analyst Anna Thung Associate Director +852 2263 9921 Fitch (Hong Kong) Ltd 28th Floor, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Andrew Colquhoun Senior Director +852 2263 9938 Committee Chairperson Paul Rawkins Senior Director +44 20 3530 1046 Media Relations: Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Sovereign Rating Criteria', dated 13 August 2012 and 'Country Ceilings' dated 13 August 2012 are available at www.fitchratings.com. Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Link this Share this Digg this Email Reprints

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