Cash-Starved Las Vegas Sands Seeks Help in Asia - 7th November 2008
(Credit: The New York Times)

Sheldon Adelson, the billionaire who controls Las Vegas Sands, is in talks with Singapore’s government and banks in Hong Kong and Macao as a cash shortage threatens $16 billion of casino developments in Asia, Bloomberg News reported, citing people familiar with the negotiations.

Mr. Adelson and government officials, who met this week, will pledge to complete a $4 billion project in Singapore, said a person with knowledge of the meeting told Bloomberg. Hong Kong and Macao bankers are also discussing financing for Las Vegas Sands’ Macao projects, Bloomberg said, citing two people involved in the transaction.

Las Vegas Sands seeks funding to stave off loan defaults while facing “substantial doubt” about its ability to survive, it said Thursday. Casino revenue in Macao, where the company earns about two-thirds of its sales, fell in the second and third quarters for the first time in at least three years.

“If they come up with something to help them get through this, the expansion can still be on course,” Billy Ng, a Hong Kong-based analyst at JPMorgan & Chase, told Bloomberg. “They are dealing with a liquidity crunch that nobody could’ve foreseen.”

Las Vegas Sands, which had $8.8 billion in long-term debt at the end of June, said in a regulatory filing that it probably wouldn’t meet lenders’ requirements unless it cut spending on developments, improved earnings at its Las Vegas Strip casinos and raised more capital.

A Las Vegas Sands spokesman, Ron Reese, declined to comment on any negotiations, Bloomberg said. The Singapore Tourism Board told the news service that it had nothing to add beyond a statement on Oct. 29, when it said it was in talks with Las Vegas Sands to “facilitate the success” of the Marina Bay Sands project.

Las Vegas Sands may have to delay or suspend its Macao projects “if the company is not able to obtain the requisite financing or the terms are not as favorable as it anticipates,” it said in a filing.

The Macao project financing, originally at more than $5 billion, may be cut because of the exclusion of a proposed $3.3 billion refinancing of loans signed in 2007, people involved in the deal said. The arrangement for new financing was originally scheduled for completion in late September or early October.

Lenders have also suggested that Las Vegas Sands sell shares or convertible bonds, the people said.

DBS Group, one of eight banks hired to arrange a loan of 5 billion Singapore dollars, or $3.4 billion, for Las Vegas Sands’ Singapore casino, said it saw “no indication of default” on the debt.

Pretax income for Las Vegas Sands in the first half was $80.1 million less than needed to cover fixed charges including interest expenses, Las Vegas Sands said in the filing. The company had a shortfall of $80.7 million at the end of last year. The company’s pretax income was 1.2 times the charges at the end of June 2007.

Shares of Las Vegas Sands plummeted on Thursday by 33 percent, to $7.85 in New York trading, after it said it might default on loans arranged by Citigroup, Goldman Sachs Group and Lehman Brothers. That’s the biggest drop since it went public in 2004 and extended a slide this year to 92 percent.

The company’s earnings may be hurt by Chinese government restrictions on mainland residents visiting Macao, where Las Vegas Sands operates the Venetian Macao, the biggest casino resort in Asia. Macao, a former Portuguese colony, is a semi-autonomous city and the only place in China where casino gambling is legal.

Casino gambling revenue in Macao fell to 26 billion patacas, or $3.28 billion, in the third quarter from 28.9 billion patacas in the second.

Mr. Adelson’s company is also building the $800 million Sands Bethworks in Bethlehem, Pennsylvania, and a $600 million condominium complex in Las Vegas. Mayor John Callahan of Bethlehem said Las Vegas Sands had suspended work on construction of a hotel, conference center and mall to speed up completion of the casino there.

Spending declines on the Las Vegas Strip have also reduced Las Vegas Sands’ cash flow. Mr. Adelson, 75, who holds a stake of more than 64 percent, invested an additional $475 million in September to avoid violating the terms of a loan. He hired an unidentified investment bank to help raise more capital.

The casino operator said it did not expect to meet a maximum leverage ratio covenant in the fourth quarter. That would trigger defaults that might force it to suspend development projects and “raise a substantial doubt about the company’s ability to continue as a going concern,” Las Vegas Sands said in the filing.

Greg Tingle comment...

Sheldon Adelson is putting his own money where his mouth is. That is a sign that a. He's got money and b. He's confident that the good times in the LA casino business will come again. Adelson is looking to lead by example. It reminds me somewhat of a few instances that Sir Richard Branson of Virgin Enterprises Limited backs himself and his company, to show leadership, even when share prices in the sector and his own company take a dive. You can bet that the likes of Mr James Packer and Mr Ho of Crown Casino and Crown Macau are watching this space closely. Mr Packer recently opted out of the Australian TV business via his association with Network Nine Australia, PBL and CVC, to focus his efforts on the Crown Casino chain. It will be interesting to see if Packer's current focus on the casino sector pays off. Casinos are of course part of the investment, property and tourism sector, so one can bet that the likes of Adelson, Packer and Branson have a few aces up their sleeves. Most countries and cities have a tourism sector, and its in the governments best interests to look after the sector. I can foresee further consolidation and even mergers in the casino sector, much like the mergers that are occurring in the aviation business. Mergers of the right kind, and appropriate government action may be what's required to see the casino (and hotel - resort) sector once again return to the glory days when things were pumping Frank "Lefty" Rosenthal style. Also, don't dismiss the fact that famed reality television producer, Mark Burnett is preparing to launch his casino game theme Rouletter television show. It's all entertainment and a battle for the entertainment and consumer dollar. Little wonder iGaming is bringing their CAP Down Under casino business conference down under to Sydney, Australia. Everyone's looking for an insider edge, in all facets of the casino and casino related sector. With all things considered, it looks like a combination of casino business family and private money, outside investor, government tourism money and a little help from the friends are going to pull the casino sector back up to the glory days, but I think the smart money says its going to take a few years, and some won't be able to wait that long.

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