Wednesday, November 12, 2008

Sands Skimps On Macau, Bets On S'pore

Source : The Business Times, November 12, 2008

Casino operator will scale back Cotai Strip development to focus on integrated resort here

With its resources curtailed by the downturn, Las Vegas Sands (LVS) has been forced to weigh and choose - and it has decided to bet big on the construction at the Marina Bay Sands (MBS) and put its Macau expansion on the backburner for now.

Downtime: Las Vegas Sands will suspend development on Sites 5 and 6 of the Cotai Strip in Macau. The sites include the Shangri-La/Traders hotel tower and the Sheraton hotel, which are said to be already half built.

As such, LVS expects to invest an additional US$500 million in equity in MBS through the targeted opening of the property in late 2009. This, after saying it could increase the number of gaming tables to a maximum of 1,000, up from 600 previously.

Making the announcement yesterday, LVS president and COO William Weidner said: 'Given current conditions in the capital markets and the global economy and their impact on the company's ongoing operations, the company has chosen to temporarily or indefinitely suspend portions of its development projects and will focus its development efforts on those projects with the highest rates of expected return on invested capital given the liquidity and capital resources available to the company today.'

Mr Weidner said it will 'focus its development activities and available capital principally on the timely completion of both Marina Bay Sands, in Singapore, and Sands Bethlehem, in Bethlehem, Pennsylvania'.

Consequently, LVS has decided to 'significantly slow the pace of our development activities on the Cotai Strip'.

In a separate statement, LVS chairman and CEO Sheldon Adelson added: 'Completing and opening Marina Bay Sands is the No 1 priority for our company.'

The company went on to give an operating profit guidance for 2012, including an annual operating profit of US$1.26 billion out of Singapore. Quizzed by a sceptical analyst, Mr Adelson said the numbers were 'extraordinarily conservative'.

Speculation about delays had intensified last week after LVS made a regulatory filing that it was unlikely to meet the maximum leverage ratio covenant, triggering defaults on loans needed to complete projects.

'Any rumour or speculation about our ability to complete this project has now been put to rest,' said Mr Adelson, adding: 'As part of my visit to Singapore last week, I assured the government we were very committed to the success of Marina Bay Sands and would have the funding necessary to complete this development. That is exactly where we stand today.'

LVS also announced that it is in the process of raising approximately US$2 billion in capital.

Mr Adelson added that this ensures adequate liquidity at the parent-company level, which will be used for the Singapore development.

As at Sept 30, total debt outstanding for LVS was US$10.35 billion. But LVS said that its S$5.44 billion credit facility to support the development of Marina Bay Sands in Singapore is in place.

To date, it has invested about US$1.81 billion in construction costs in the project, including land, and has contributed approximately US$616 million in equity. Its current estimated cost to complete the construction of the project is approximately US$2.7 billion, and it expects to fund 75-80 per cent of future construction costs through proceeds from its Singapore credit facility, of which approximately US$2 billion is available.

Jonathan Galaviz, a partner at Globalysis, a leisure sector strategy consultancy also saw positives in the Singapore market, while Macau's hands were tied by visa restrictions on mainland Chinese visitors.

'As financial pressure is exerted on Macau's casino gaming operators, the operators of Singapore's integrated resorts (IRs) should do well due to the fact that Singapore's tax on gross gaming revenue is over 50 per cent less than that of Macau's,' he said.

LVS will suspend development on Sites 5 and 6 of the Cotai Strip, and JPMorgan Securities (Hong Kong) analyst Billy Ng said he is not surprised. 'They had no choice. The market had expected this, or something even worse, to happen,' he added.

Sites 5 and 6 include the Shangri-La/Traders hotel tower and the Sheraton hotel. These, Mr Ng, are already 'half built'.

Yesterday, Macau's Chief Executive Edmund Ho said his government was aware of LVS's funding difficulties but had no plans to throw in financial assistance.

'Because of its overleveraged borrowing in the US and around the world, it's normal and expected that it has to suspend some of its projects,' Mr Ho was reported as saying.

Asked about reports that a Chinese bank would extend a significant loan to LVS, he said the Macau government was not in a position to intervene.

According to a Citigroup report, while Macau gaming revenues are estimated to be 8.9 billion Macau patacas (S$1.69 billion) for October - a 26 per cent increase over September - it still represents a 3 per cent decline compared to a year ago. Citigroup analyst Anil Daswani does not forecast a relaxation in visa restrictions until the second half of next year.

In Singapore, CIMB analyst Kenneth Ng said: 'Toning down development in Macau will be positive for Singapore.' CIMB had earlier said it expected the Singapore government to take a stake in MBS if LVS should fail. Mr Ng said: 'We have to wait and see.'

The prospects for MBS and LVS do look brighter now though.

LVS, which announced its third-quarter result yesterday, reported a net loss of US$32.2 million compared to a net loss of US$48.5 million a year ago.

Net revenue for the quarter increased 67.2 per cent to US$1.11 billion, compared to US$661 million a year ago. This was largely boosted by the net revenue contribution of US$522.4 million from Venetian Macao.

Mr Weidner added: 'At an appropriate time in the future, to the extent capital becomes available on acceptable terms, we plan to resume the development of Sites 5 and 6 on the Cotai Strip.'

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