Macau rejects Sands application for two Cotai sites
Investors grew concerned Thursday that Las Vegas Sands Corp.'s ambitious Asian development plans were dealt a blow by the Macau government.
The company voluntarily halted trading of shares of its Sands China subsidiary on the Hong Kong Stock Exchange after Macau authorities denied the company's application to build casinos on two Cotai Strip parcels.
The news caused Las Vegas Sands' shares, listed on the New York Stock Exchange, to tumble more than 6 percent at one point Thursday after the company disclosed the action in a brief filing with the U.S. Securities and Exchange Commission.
The ruling by Macau officials did not affect any of the company's current developments on Macau's Cotai Strip, but it cast into question two undeveloped sites that are reportedly being sought by a rival casino company controlled by Hong Kong billionaire Stanley Ho.
In the SEC filing, the company said it had 15 days to ask Macau's chief executive to review the decision and 30 additional days to appeal the decision to Macau's courts. The company said in the filing it was "considering all options available to it as set forth in the letter."
One gaming analyst said the move by Macau officials could halt plans by Wynn Resorts Ltd. and MGM Resorts International to expand onto the Cotai Strip. The secretary for economy and finance in Macau made comments recently about ensuring "gradual" growth in Macau.
"From a derivative standpoint, the decision from the Macau government would put Wynn's stated desire to have a Cotai facility opening by 2015 in somewhat more murky territory as it also does not yet have a land concession for its project," Sterne Agee gaming analyst David Bain told investors.
"We also believe MGM Resorts will have a more difficult time utilizing a future Cotai development as a story for its potential Hong Kong (Stock Exchange) initial public offering," Bain said.
Macau is coming off its two largest gaming revenue-producing months ever with casinos collecting $2.3 billion in October and $2.13 billion in November.
The Special Administrative Region's leadership has expressed a desire to slow growth in the gambling market, which is the only location in China where gaming is legal.
In the third quarter, Las Vegas Sands' three Macau casinos had net revenues of $1.08 billion, 56 percent of the company's total revenues.
Las Vegas Sands spokesman Ron Reese said the company voluntarily halted the trading of Sands China shares while it determined the nature of the ruling. Trading is expected to resume Friday. Shares of Las Vegas Sands closed on the New York Stock Exchange at $49.17, a drop of $2.17, or 4.23 percent.
"We believe the market reaction today is overdone and we would use the weakness as a buying opportunity," Wells Fargo Securities gaming analyst Carlo Santarelli told investors.
Las Vegas Sands restarted construction earlier this year on its stalled developments on two Cotai Strip sites. Construction was halted in November 2008 when lending for the projects dried up and Las Vegas Sands was forced to restructure its corporate finances.
The company plans to open 6,400 additional hotel rooms in the next two years under the Shangri-La, Traders, Sheraton, Sheraton Towers and St. Regis brands, adding additional convention and casino space.
The two Cotai Strip sites in question are farther down on Las Vegas Sands' development schedule. According to a June 30 financial statement, Las Vegas Sands had invested about $102 million for site preparations.
In September, Chinese media reported that Hong Kong-based SJM Holdings asked the Macau government to give the company the two undeveloped Cotai Strip sites. SJM, which has 18 casinos in Macau, reportedly made the request in writing to the Macau government.
JP Morgan gaming analyst Joe Greff said Macau's chief executive may want to diversify the casino operators on the Cotai Strip and the move could signal a preference for non-American companies to build out the development with non-gaming facilities.
"We are not pleased with the government action taken today and believe it's more having to do with a U.S. operator having too much share at the expense of local operators," Greff told investors.
Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.
