LVS seems to be increasingly willing to be creative with its funding options in Macau.
The South China Morning Post‘s report recently that LVS was considering offering a lease back deal on the bricks and mortar of Sands Macao was the latest in a line of initiatives including possible equity buy-ins by outside investors on the currently suspended Cotai plots 5 and 6, and the monetisation of real estate at The Venetian Macao and at the Four Seasons next door.
If LVS had concluded a new equity deal or monetisation scheme on Cotai, Asian Gaming Intelligence is pretty sure the markets would have heard about it by now, so as the next debt payment deadline moves closer, LVS’s team will be carefully considering their options.
The predominantly mass market Sands Macao has been a money box for LVS in Macau. It was relatively cheap to build (USD285 million) by the standards of the more recent megabucks integrated resorts and it reached pay back on project costs within 12 months of opening in 2004. On that basis the opportunity for third party investors to be offered exposure to Sands Macao’s gaming revenue stream in return for money up front could be tempting. The SCMP quoted analysts mentioning figures between USD1.3 billion and USD1 billion based on yields of 7.5 percent to 10 percent.
Investment sources spoken to by AGI think a figure closer to USD400 million might be more realistic, given Sands Macao’s recent performance. Last year, Sands Macao recorded USD213 million of earnings before interest, tax, depreciation and amortisation—significantly lower than the USD372 million profit realised by the property in 2007.
However, sources in the investment sector told AGI that even leaving queries about market valuation of Sands Macao’s lease yield potential to one side, there could be some regulatory issues even in a scenario where LVS sells the lease of the building and continues to operate the gaming licence.
“The appeal of it essentially would be to leverage off the gaming revenue stream. In effect the lease buyer would probably be looking for payments related to the performance of the gaming operation tomorrow, in return for giving cash up front today.
“The difficulty with that is that in regulatory terms that might count as gaming participation on the part of the new leaseholder, and the DICJ [Macau’s gaming regulator] might have something to say about that.”
AGI awaits with interest the next development in this story.
