Sands Macau Casino Up For Grab?

Posted: April 28, 2009 in Uncategorized

 

selling-sands-casino2Commentary by: Expert IR

 

Press Report

HONG KONG (27 Apr 2009) – LAS Vegas Sands is considering selling one of its Macau casinos, a report said on Monday, as revenues plummet in the world’s biggest gaming market.

 It plans to put the Sands Macao up for about US$1.3 billion (S$1.95 billion) after failing to sell its luxury shopping centres in the southern Chinese territory, the South China Morning Post said without naming sources.

 The report said Las Vegas Sands was considering selling the building and continuing to run the 21,274 sq m casino while paying the new landlord rent based on performance..

 

Expert IR says: What’s in the Nutshell

I vividly remember that the Sands Macau Casino was built with a price-tag of USD240m in 2004. Full investment costs were recouped just within an unprecedented timeframe of 11 months after the property commenced its operations.

Financial crisis or not, does the property really worth the asking price of USD1.3 billion? And who would buy over a casino in Macau and continue to let the seller to run it and take a rent? (And to top it of, rents that based on performance!).

What it means is that, “You pay me the money (USD1.3b) and I would keep running my own business. And if I do make money, here’s your rent. And if I don’t make it good… too bad”.

But who knows? This Sands Macau Casino could be a gold mine. But let me just refresh some interesting figures from my gathered information,

 

LVS Macau operations – EBITDA

          Averaged EBITDA for year 2006:  Approx. USD440m (single property – Sands Macau Casino)

          Averaged EBITDA for year 2007:  Approx. USD408m (with Venetian Macau Cotai-Resort opened in Aug 2007)

          Average EBITDA for year 2008:   Approx. USD388m – USD620m (two casino properties in operations). (Averaged EBITDA for the industry in Macau was 12.5%)

 

It is interesting to know, ultimately, how much EBITDA margins a potential new buyer of Sands Macau Casino (with 700+ gaming tables) can hope for in order to receive a proper (equitable) rent from Mr. Adelson?

In fact, this idea of letting others bear the risk of investment and receive rental returns is not new, for Cotai development in the territory. In early 2004 LVS had already tried this with potential branded hotel property investors/managers for them to build casinos within invested hotel properties and LVS would only pay rentals for the casino space they would operate. The rest is history.

 

Then you might ask why the hell they (LVS) are trying this again, when it failed even in the early days of booming Macau?

The answer is very basic and simple: That LVS remains a sub-concessionaire of casino license (branched out from Galaxy Entertainment Group). They are not allowed to resell the sub casino license.

It is only possible unless Macau government go ahead to admen the rule of the game. But then again, it opens a bigger floodgate for the rest! And it will be Choas.

 

With my observation, LVS may consider the following,

 

(1)  That they could rally strong junket syndicate groups in Macau, Hong Kong and mainland China, pool resources to buy over Sands Macau Casino (without a license) under one single management company. Hence, what it means is to operate the casino per se as a mega “Junket-Rooms Supermart”… Under this arrangement, LVS would still have to negotiate on more equitable shared casino revenue with the potential buyer under this scheme.

 

(2)  That they could offer the casino per se like a REIT (same as retail malls’ trust). The rest is about working out an acceptable (equitable) detailed terms & condition for investors with casino revenue/profit split or dividend. 

 

In my opinion, owning a casino space regardless of how big it is, it is just a nightmare without at the same time owning a valid casino license or at least to be able to run the casino. Therefore the answer is clear, to the fundamental question: Who would pay USD1.3b for a casino that does not include at least a part of the gaming license?  

 

In essence, I would think that LVS has run out of options at this stage of the game. They are competing not with their competitors but with TIME. LVS is rushing to,

          Create new revenue sources that could sustain their ongoing short-term operations and current projects, such as Marina Bay Sands and Penn, USA.

          Cutting down costs drastically.

          Capital and long-term loans restructuring.

 

It is a huge challenge ahead for LVS, and a very wrong timing though.

 

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