As afternoon storm clouds gather, an almost daily occurrence in wet and steamy Singapore, work goes on as usual at the Marina Bay site of Las Vegas Sands’ $4 billion resort and casino project. The earthmovers scoop and dump the soft soil, and workers fan out across the city-state’s most coveted piece of land, which girdles the central business district and offers a sweeping view over the emerald waters of the Malacca Straits.
But for the Las Vegas-based casino operator, a full-blown financial hurricane may be brewing. In a Nov. 5 filing to the Securities and Exchange Commission, Las Vegas Sands revealed its cash was drying up. For the first six months of 2008, according to the filing, the company’s earnings were “insufficient to cover fixed charges” by $80.1 million. This gaping shortfall, astonishing for a company that was throwing off more than $600 million in free cash flow annually just three years ago, could trigger defaults on its $8.8 billion in long-term loans. That, in turn, could jeopardize Las Vegas Sands’ ability to continue “as a going concern,” according to the filing.
Controlled by billionaire Sheldon Adelson, Las Vegas Sands is yet another high-flying company that has been caught out by the global credit crunch and crashing economy. Adelson, who is credited with helping to revitalize Las Vegas with his lavish Venetian and Palazzo resorts, has become a well known figure in Asia, where in recent years he has spent billions building new casinos and hotels in the Chinese enclave of Macau. When Singapore decided several years ago to boost its economy by becoming a tourist destination, the government of the conservative little city-state took the controversial step of legalizing gambling. Las Vegas Sands was tapped to build an anchor casino and resort complex on Marina Bay.
But with the U.S. economy entering recession, gamblers in Las Vegas are growing more reluctant to part with their money. Las Vegas Sands has also been grappling with an unexpected problem: China’s government is increasingly alarmed by the profligacy and gambling debt of its citizens. China recently imposed visa restrictions on mainland tourists to Macau, reducing the anticipated cash flow from Las Vegas Sands’ Asia operations. According to Daniel Renshaw, a Sydney-based gaming analyst with Merrill Lynch, these twin challenges will be difficult to surmount. “They are relying on an increase in revenue in Las Vegas and Macau over the long term,” says Renshaw. “That seems to me a precarious position to be in.”
Analysts say the Marina Bay casino is too important for the economic diversification of Singapore, which is overwhelmingly dependent on electronics exports and trans-shipping, for the project to collapse. The Singapore Tourism Board may step in either with an infusion of cash or an agreement to assume a sizable chunk of the troubled casino operator’s debt. “We are working closely and are in dialogue with Marina Bay Sands [Las Vegas Sands’ Singapore subsidiary] to facilitate the completion of the project,” says Margaret Teo, Assistant CEO of the Singapore Tourism Board. She declined to provide further financial details.
According to Las Vegas Sands’ original proposal, the project, which is scheduled to open late next year, would include 2,500 hotel rooms, 1.2 million square feet of convention and exhibition space, an art and science museum, various theatrical venues, as well as a trio of linked marina-facing botanical gardens. Using the iconic structure as its main attraction, Singapore — which in September hosted the first Formula One Grand Prix race to be held at night — aims to double tourism arrivals to 17 million annually and triple its tourism receipts. “There is no doubt in my mind the Singapore government will come in to ensure the project is completed,” says Merrill Lynch’s Renshaw. “The government will not let it fail.”
Las Vegas Sands plunges on default, bankruptcy risk
Las Vegas Sands Corp., billionaire Sheldon Adelson’s casino company, fell the most in New York trading since going public after saying it may default on debt and face bankruptcy.
The casino owner, which had $8.8 billion in long-term debt at the end of June, said in a regulatory filing today that it probably won’t meet the requirements of loans arranged by Citigroup Inc., Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. unless it cuts spending on developments, boosts earnings at its Las Vegas Strip casinos and raises more capital.
The reversal of fortune is a black eye for the 75-year-old Adelson, who was once America’s third-richest man on the strength of his Las Vegas Sands holdings. The Las Vegas-based company’s dwindling cash flow is threatening $16 billion worth of developments in Macau, China, and Singapore, where Las Vegas Sands is building resorts to cater to wealthy Asian gamblers.
“They need to raise money,” said Keith Foley, a New York- based analyst at Moody’s Investors Service Inc. “It’s getting to the point where they need to do something now.”
The shares dropped $3.81, or 33 percent, to $7.85 at 4:04 p.m. in New York Stock Exchange composite trading, the biggest decline since its initial share sale in December 2004. Las Vegas Sands had tumbled 91 percent before today this year as investors dumped the stock, worried that falling casino winnings and the global financial meltdown would leave the company without enough cash.
Spending declines on the Vegas Strip and restrictions on visas in Macau have stemmed the flow of cash into Las Vegas Sands. Today’s admission comes after Adelson, who holds a stake of more than 64 percent, invested an additional $475 million in September to avoid violating the terms of a loan, and hired an unidentified investment bank to raise more capital with his help.
Las Vegas Sands’ rush to raise capital “points to the deterioration of fundamentals, not just for the company, the fundamentals of Las Vegas,” said Dennis Farrell, a debt analyst with Wachovia Capital Markets LLC in Charlotte, North Carolina.
The casino owner said it doesn’t 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.”
“Sheldon still has considerable resources, and we doubt he will sit on the sidelines and watch LVS go bankrupt,” Robert LaFleur at Susquehanna Financial Group LLLP, said today in a client note he titled “Scary Post-Halloween 8-K Filing.” “The question is how much dry powder does he have, and what can he do?”
In a July conference call, Adelson suggested he would step in to help the company with any financing it might need, saying a friend described him as “the tallest person I know when you stand on your wallet.”
“And I’m saying right now, the company will not have liquidity problems,” he said at the time.
Ron Reese, a spokesman for Adelson, didn’t return an e-mail seeking an interview.
Las Vegas Sands made a filing with regulators today to allow it to quickly sell stocks or bonds if it finds investors.
“The offering shows what their intent is, but it doesn’t mean they’ll be successful,” said Foley. “How and when is uncertain, and their ability to successfully do that is uncertain.”
Adelson founded the Comdex computer expo in 1979, later selling the business and using the proceeds to build the Venetian Resort Hotel Casino in Las Vegas.
He is also building a $600 million condominium in Vegas and a $600 million casino resort in Bethlehem, Pennsylvania. The risk of default applies to some of Sands’ U.S. unit loans.
“It would be prohibitively expensive to raise outside debt capital at this time,” said Farrell. The company will probably sell more stock, which would hurt existing shareholders including Adelson.
Other alternatives might be another investment from Adelson, an injection of cash from an outside investor or a loan from foreign banks, said Farrell.
The filing, which affects its U.S. unit’s debt, sparked new concerns that Las Vegas Sands won’t finish Singapore’s first casino or a 20,000-room complex of hotels and casinos in Macau. The Chinese territory overtook the Vegas Strip as the world’s biggest gambling market in 2006.
Should Sands fail to raise capital, “we would need to immediately suspend portions, if not all, of our ongoing global development projects and consider other alternatives,” the company said in the filing.
Las Vegas Sands owns the Venetian and Palazzo casino resorts on the Las Vegas Strip, plus the Macau Venetian, Sands and Four Seasons, and had expected sufficient earnings from the properties to fund its expansion and pay loans.
Las Vegas Strip casino gambling revenue slid 6.7 percent this year through August, on track for its biggest annual decline on record, as airlines cut back capacity and consumers, battling declining home values, job losses and the worst financial crisis since the Great Depression, spent less.
China increased visa restrictions on some mainland residents traveling to Macau, causing casino gambling revenue in the former Portuguese colony to fall to 26 billion patacas ($3.28 billion) in the third quarter from 28.9 billion patacas in the second.
Adelson plans to sell Sands’ Four Seasons apartment hotel in Macau as a co-operative and wants to sell the attached mall space.
Las Vegas Sands’ Adelson said to meet with Singapore
Beth Jinks & Kelvin Wong
Sheldon Adelson, the billionaire who controls Las Vegas Sands Corp., held talks with the Singapore government this week as a cash shortage threatens the company’s $4 billion casino development there, a person with knowledge of the meetings said.
Las Vegas Sands seeks funding to stave off defaulting on loans while facing “substantial doubt” about its ability to survive as a going concern, the casino operator said yesterday. Las Vegas Sands and government officials will publicly pledge to complete the Singapore project, said the person, who declined to be identified because the information isn’t public.
Yesterday’s filing raised concerns that dwindling cash flow may jeopardize $16 billion of casino developments in Macau, China, and Singapore, where Las Vegas Sands seeks to cater to wealthy Asian gamblers. Restrictions on Chinese who want to visit Macau may damp gambling revenue in the city where the company operates Asia’s biggest casino resort.
“If they come up with something to help them get through this, the expansion can still be on course,” said Billy Ng, a Hong Kong-based analyst at JP Morgan & Chase Co. “They are dealing with a liquidity crunch that nobody could’ve foreseen.”
Las Vegas Sands’s shares plunged the most since going public in 2004 in New York trading yesterday, after saying it might default on loans arranged by Citigroup Inc., Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc.
The casino owner, which had $8.8 billion in long-term debt at the end of June, said in a regulatory filing that it probably won’t meet lenders’ requirements unless it cuts spending on developments, boosts earnings at its Las Vegas Strip casinos and raises more capital.
Las Vegas Sands spokesman Ron Reese declined to comment on any negotiations. The Singapore Tourism Board said 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.
The casino owner is also building the $800 million Sands Bethworks in Bethlehem, Pennsylvania, and a $600 million condominium complex in Las Vegas. Bethlehem’s mayor John B. Callahan said today that Las Vegas Sands suspended work on construction of a hotel, conference center and mall to speed up completion of the casino there.
Las Vegas Sands dropped $3.81, or 33 percent, to $7.85 yesterday in New York Stock Exchange composite trading, the biggest decline since its initial share sale in December 2004. The shares have lost 92 percent of their value this year amid concerns that falling casino winnings and the global financial meltdown would leave the company short of cash.
Declining Macau revenue
Spending declines on the Vegas Strip and restrictions on visas in Macau have stemmed the flow of cash into Las Vegas Sands.
China increased visa restrictions on some mainland residents traveling to Macau, causing casino gambling revenue in the former Portuguese colony to fall 10 percent to 26 billion patacas ($3.26 billion) in the third quarter.
Yesterday’s admission came after the 75-year-old Adelson, 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 raise more capital with his help.
The casino owner said it doesn’t 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.
Singapore DBS says no Las Vegas Sands loan default
Saeed Azhar & Kevin Lim
DBS Group, Southeast Asia’s biggest bank, said there had been no default or indication of a default from casino firm Las Vegas Sands Corp for its project in Singapore.
“There’s been no default, no indication of default. The project is still going along,” DBS’s CEO Richard Stanley said on Friday. “I do expect there will be an integrated resort in Marina Bay in Singapore in 2010.”
Shares in Las Vegas Sands, which is building one of two casinos in Singapore, fell as much as 44 percent on Thursday after the casino operator’s auditor said there are doubts about the company’s ability to continue as a going concern.