2nd UPDATE: Las Vegas Sands: Macau Rejects Request For Cotai Rights
December 02 2010 - 3:50PM
Dow Jones News
Las Vegas Sands Corp. (LVS) said Thursday the Macau government
has rejected its unit's application for rights to a plot of land in
the territory's lucrative Cotai area, presenting a fresh obstacle
for its development plans and a reminder of the policy risks
associated with investing in the booming market.
Sands China Ltd. (1928.HK) received a letter from the local
government dated Dec. 2 stating that its application to acquire
exclusive rights to land known as sites 7&8 had not been
approved, Las Vegas Sands said in a filing with the Securities and
Exchange Commission following an earlier Dow Jones Newswires
report.
Sands China, whose shares were suspended from trade in Hong Kong
on Thursday pending the release of this announcement, has already
spent US$102.4 million on pre-construction costs on the sites as of
Sept. 30.
Las Vegas Sands' shares were 3.5% lower at $49.56 in recent
trading, recovering from a low of $47.20 hit earlier.
The company said that the government also offered it two avenues
for appeal, which it was currently considering. Sands China has 15
days to apply to Macau's chief executive for a review of the
decision; it also has 30 days to appeal to local courts, Las Vegas
Sands said.
A representative of the Macau government's lands department told
Dow Jones Newswires earlier Thursday that the application procedure
for land rights for sites 7&8 "is not fully completed" and that
the government would announce the result later. Macau legal experts
said the government's statement likely referred to Sands China's
right to appeal the decision.
The news comes as the company struggles to complete a
long-delayed expansion project on another site in the Cotai area,
and after rival operator SJM Holdings Ltd. (0880.HK) said it had
sent the government a letter expressing its interest in sites
7&8.
Wells Fargo analyst Carlo Santarelli said in a report that the
sharp share price fall in reaction to the news was overdone, noting
that the bank hadn't been ascribing "much, if any" value to the
project. But he added: "Today's announcement serves as yet another
reminder of the unpredictable nature of policy decisions in Macau,
something we believe will be a recurring theme in 2011."
Morgan Stanley analyst Mark Strawn wrote that the news shouldn't
affect Las Vegas Sands's valuation given that this project was not
likely to open until 2018 at the earliest but said that in the near
term, the announcement could negatively impact Macau stocks "as it
highlights a willingness to control growth through increased
government intervention."
Macau, set to rake in four times the casino revenue of the Las
Vegas Strip this year, is the only place in China where casino
gambling is allowed. Sands China pioneered a plan to transform
Cotai's swampland into the Las Vegas Strip of the East, and has
already spent US$6 billion on projects in the area.
It isn't unusual for Macau casino operators to start work on
land after receiving verbal approval from the government but before
receiving exclusive rights to the land as Sands has. Though a risky
move--Sands China did say in its global offering documents that if
it failed to obtain a land concession for the plot, it could
forfeit all of its investment in the project--this is the first
time the strategy appears to have hit a snag.
It's unclear what will happen to the land now. If an appeal by
Sands China is not successful, industry executives said the plot
could be auctioned off to rival operators or even just left to hang
in limbo for a while.
Sands China is currently building a US$4.1 billion project on
sites 5&6, whose construction has been delayed because of a
government-imposed labor shortage. The company, after announcing
several delays, has most recently said the project's completion
date isn't currently determinable with certainty given the
inadequate amount of construction workers. Analysts have said they
expect the first two phases of the project to begin operations in
mid-2012.
Further complicating matters for Sands China in the Chinese
territory are allegations by the company's former chief executive,
Steve Jacobs, who said in a lawsuit filed in Nevada in October that
he was ordered to arrange secret investigations of Macau government
officials. Jacobs also alleges Las Vegas Sands Chairman Sheldon
Adelson demanded he try to convince major Chinese banks to use
their relationship with Macau officials to help the company receive
favorable treatment.
Sands denies the claims, made by Jacobs in his
wrongful-termination lawsuit against the company, but the
allegations haven't gone unnoticed by the local government.
The Macau government's decision not to award the company land
rights comes just under three months after competitor SJM Holdings
Ltd. (0880.HK) Chief Executive Ambrose So told Dow Jones Newswires
in a September interview that the Hong Kong-listed company had sent
a letter to the government asking for permission to take over sites
7&8. So also said he expected land rights to build on Cotai
would be granted for SJM, controlled by Macau gambling tycoon
Stanley Ho, Wynn Macau Ltd. (1128.HK), and MGM Macau by the end of
this year.
Sands China, which already operates the Venetian and Plaza
casino resorts on Cotai, has two other outstanding projects on
Cotai for which it has already secured land rights. The Macau
government earlier granted Sands China a two-year extension to
complete site 3, which now must be finished by April 2013. Sites
5&6 must be completed by May 2014, according to the land
contract.
-By Kate O'Keeffe, Dow Jones Newswires;
kathryn.okeeffe@dowjones.com