Sands – A Tough Company In A Tougher Situation

Posted: July 8, 2009 in Uncategorized

A Tough Company In A Tougher Situation

Contributed by:   expert IR           July 8, 2009   MBS

The Reuters (Singapore) says  – Las Vegas Sands (LVS.N), the world’s largest casino firm, wants to raise $3-$4 billion and is considering several options including an IPO of its Macau assets in Hong Kong, Chairman and CEO Sheldon Adelson said on Wednesday.

… Adelson said the Marina Bay Sands is now expected to open in either January or February next year instead of at end-2009 as earlier announced.


I have been writing about Sands situation and scenarios in many articles, so this time around I would just pinpoint a few critical issues in respond to the above news release by Reuters.

Situation Critical #1.   LVS’s balance sheet is still not sound. Asset to Liability ratio is weak. Resulted in over-gearing position and is still in a tight spot – lack of credit lines for short-term huge capital expense needs.

Situation Critical #2.   It is a poor judgment to invest in Penn, USA casino resort, at the wrong time and wrong place. LVS must have hoped that Penn casino’s opening would help either to bring in good cash flow or at least regain confidence of investors (and creditors) for loans restructuring as well as new credits.

Situation Critical #3.   Mr. Adelson’s announcement to further delay the opening timeline of Marina Bay Sands (Singapore) is hinting to yet another potential show-stopper after his Cotai Strip disaster. This is not the first time Mr. Adelson calling a delay in opening of Marina Bay Sands. If Resort-World@Sentosa can beat it to open first (?) and have a good run, that will put Sands to the corner. Remember, it is assessed that the size of Singapore gaming market is only at best 25% of Macau’s, within the first 5 years of IR commencement (from 2010 – 2015). Therefore, it is not really a big market to grab. And, it is expected that casino revenue will be about 70 – 80% of total IR revenues. To fall behind the race is liken to be a T.O. (technical knockout) in the ring. Just to add the fundamental factor into the Lion City IR’s equation, that its costs of capital and operation are staggering. Therefore, to survive the game, an operator must achieve at least 30% EBITDA margins consistently.  (Macau currently averages 12.5% EBITDA margin!)

Situation Critical #4.  It is clear that LVS’s asset pricing remains at a historical low value. Whatever options (sometimes 5, sometimes 6) that were mentioned by LVS are not taken very seriously by investors apparently, including a public listing of its Macau assets in the Hong Kong stock exchange.

The year 2009 remains a very crucial passage for Las Vegas Sands Incorporated. But to be fair, this is truly a tough company albeit in a tougher situation.

  1. David Sofer says:

    Expert IR, I was reviewing Las Vegas Sands Corporation’s March 2nd of 2009 SEC 10-K Filing at page 19 under section header “Development Agreement with Singapore Tourism Board” it says: “There will be a casino tax of 15% imposed on the gross gaming revenue from the casino, except in the case of gaming by premium players, in which case a casino tax of 5% will be imposed on the gross gaming revenue generated from such players… MBS will be permitted to extend casino credit to persons who are not Singapore citizens or permanent residents, but will not be permitted to extend casino credit to Singapore citizens or permanent residents except to premium players… key constraint imposed on the casino under the Development Agreement is the total size of the gaming area, which must not be more than 15,000 square meters… casino located within Marina Bay Sands may not have more than 2,500 gaming machines, but there is no limit on the number of tables for casino games permitted in the casino….November 2008, the Casino Regulatory Authority of Singapore… informed us, following our submission, that our conceptual casino floor plan for Marina Bay Sands complies with the CRA’s requirements for casino layout. This floor plan would permit Marina Bay Sands to feature up to 1,000 table games (increasing its original layout from 600)….” Please comment on these details thanks!
    David Sofer

    • expertir says:

      Expert IR’s Reply:

      Yes you are right about the constraints imposed on the IR casinos.
      The key limitation imposed is the 15,000 sq.m. practical casino floor space. Capping of Slot units to 2,500 is to allow space for VIP and mass table games. Singapore IR hopes to rally in big business for VIP gaming.
      Marina Bay Sands said they would increase to 1,000 gaming tables… this is meant for the syndicate banks/investors/analysts to hear. Adelson needs to raise more monies… thats all. Anyway, what will be the real table utilization rates for 1,000 tables? And, manning costs? The answer is clear.

  2. […] Submitted on 2009/07/17 at 3:46am […]

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