Las Vegas Sands Seeks to Wow Macau

The rumors underestimated what the company wants to raise through an IPO for its China gambling operation.

Robert Steyer
Robert Steyer
Nov 11, 2009 at 12:00AM

In the casino industry, the word "more" is never in short supply. More luxury. More glamour. More expansion. And almost inevitably, more debt.

Las Vegas Sands (NYSE:LVS) added to the lexicon of "more" on Monday with its IPO proposal to the Hong Kong Stock Exchange. It wants to raise more money and sell more of a stake in its Macau casino subsidiary than had been speculated.

The company also said it has made progress raising more money from a group of lenders to help restart construction on projects that were halted 12 months ago. Las Vegas Sands hasn't announced a construction date, but says it has received commitments from banks and other financial institutions for $1.45 billion (U.S.) of a targeted $1.75 billion. The Wall Street Journal, citing one unidentified source, said preliminary work could resume in January.

Las Vegas Sands' burst of activity was announced five weeks after competitor Wynn Resorts (NASDAQ:WYNN) sold 25% of its Macau operations via an IPO for $1.87 billion, including the underwriters' overallotment.

Las Vegas Sands, which had been rumored to be seeking $2.5 billion for approximately 15% of its Macau business, is now seeking as much as $3.35 billion via an IPO. Depending on the IPO's popularity, the company would sell 28% to 30% of its Macau subsidiary.

The company seems to have captured some momentum thanks to the strong response to the Wynn Macau IPO, plus a rising interest in Hong Kong Stock Exchange IPOs bolstered by rising share prices in Asia.

Beware of surprises
Alas, investors in China's gambling industry -- from Las Vegas Sands to Wynn to MGM Mirage (NYSE:MGM) to Melco Crown Entertainment (NASDAQ:MPEL) -- have learned to expect the unexpected -- including the government's changing policies on Chinese mainlanders' visits to Macau.

The latest issue is a question of "less" rather than "more." Several news accounts say Macau faces a severe water shortage because of a prolonged drought in southern China. Rationing is already occurring in neighboring Zhuhai, and it's a possibility in Macau as well.

Back in August, I cautioned casino-company investors about risks from acts of God, although we were more concerned with too much water -- floods, hurricanes, and, in China, typhoons -- rather than too little.

For Las Vegas Sands investors anxiously awaiting the results of the Macau IPO and the separate financing for construction, let's hope the money doesn't dry up before the reservoirs do.