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Las Vegas Sands (LVS) has gambled big on Macau, and like most high-rollers who stay in the game when the cards turn sour, it is being forced to scramble for cash to stay in the game. After failing to find an angel to buy or take a healthy stake in the Sands' holdings in China, it is now considering an IPO on the properties. According to The Wall Street Journal, the company has hired Goldman Sachs Group (GS) to evaluate such a deal, probably to be offered on the Hong Kong exchange.

Las Vegas Sands recently reported the fifth successive quarter of negative results, losing over $34 million in the first quarter of this year alone. Dismal as these figures are, they are a big improvement over the disaster of the previous quarter, when the company lost $111 million. It paid over $85 million alone in interest in the first quarter of 2009, and carries over $10 billion in long-term debt. The fact that the company suggested that its recent performance shows the gaming market is beginning to recover is a sad commentary on how far it has fallen.

When LVS sold The Shoppes at The Palazzo to GGP Limited Partnership in 2004, some of the price was to be based on future net operating income. However, GGP recently filed Chapter 11. To date LVS has received $295.4 million in the deal, but it has spent $381.1 million to build and develop the shops. If prospects don't improve, expect LVS to take an impairment charge for this.

In Macau, the company has been hurt by increased competition, travel restrictions and the economic downturn. Longtime island magnate Stanley Ho has updated a couple of his once-tawdry casinos and recaptured some of the traffic. Also, his son Lawrence is about to open a new casino, The City of Dreams, adjacent to the Venetian. At the same time, traveling restrictions imposed by the Chinese government have resulted in more day gamblers and fewer overnighters.

The IPO would probably encompass the company's properties in Macau, both finished and in process, which include:

  • The Sands Macao, 389 suites and 229,000 square feet of gaming space
  • The Venetian Macao Resort Hotel, with 2,900 suites and half a million square feet of gaming floor, on the new Cotai Strip
  • Four Seasons Hotel Macao, with 360 rooms and a casino

Also planned on the Cotai Strip are 19 Piaza mansions and the Four Seasons Apartments Macao, Cotai Strip, a million square feet of luxury units and common areas. LVS had already announced plans to sell shares in a subsidiary that will own this development, which will entitle the holder to one of the units. The company has dumped $900 million into these projects, with another $320 million needed for completion. Reuters estimates the company needs another $1.5- $2 billion more dollars to finish all its developments.

Even more ambitious plans to develop more properties on the strip have been mothballed. However, the terms of the Sands agreement with the government contain deadlines for development that, if not met, could jeopardize its existing businesses. It also continues to move forward with plans to enter Singapore, which will require yet more development funding.

On the positive side, Las Vegas Sands expects to finally cut the ribbon on the Sands Casino Resort Bethlehem (Penn.) later this month, finally generating revenue from the $550 million investment (with another $290 million needed to complete ancillary building.) It has also halted development of the St. Regis Residences at the Venetian Palazzo due to the collapse of the Las Vegas condo market.

The company is straining to comply with maximum leverage convenants in both its U.S. and Macao credit facilities. An IPO could provide some much-needed cash. The question is, will enough people be willing to roll the dice on this offering?


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