Monday, November 10, 2008

Las Vegas Sands: The Clock Is Ticking

I am really puzzled why the PAP government keeps reassuring us about the situation of LV Sands while all news and indicators have pointed to BAD conditions!

The only way to save LV Sands is to inject new fresh capital into it and this is unless SOMEONE BIG enough comes to the rescue! In times of this great financial turmoil, who in his sound mind would commit billions of dollars to bail LV Sands out? Singapore government's investment arm GIC or Temasek Holdings? Or could it be Singapore Government or its GLCs buying over the company Sands has which is tasked to develop the casino resort in Singapore?

Whichever way it is, IF, a very BIG IF (seems that it is quite possible actually!) LV Sands is to go down, would it be wise for PAP government to mobilize our country's GIC or any other GLCs to bail Sands Singapore out? It seems that it is inevitable that Sands will get into insolvency if no fresh capital or "WHITE KNIGHT" comes to rescue it.

Would it be foolish for a small nation like ours to increase our stake on this casino resort when the future is full of uncertainty? I do not see how we could get out of this mess right now unless the PAP government has more credible information to support their optimism in Sands completing the Marina casino resort ON ITS OWN!

Goh Meng Seng

Las Vegas Sands: The Clock Is Ticking

Sheldon Adelson’s baby, the Las Vegas Sands (LVS) (of which he’s a 64% owner) issued an 8K filing and auditor’s report in which it reminded us that if the company can’t obtain substantial capital by December 31, it would break several debt covenants. Should it break them, then we’d be in all-out equity destruction territory or whatever your definition of “raise a substantial doubt over the company’s ability to continue as a going concern,” is….

Covenant Details

As I discussed in an earlier post, LVS must maintain at least a 20% ratio of either equity or rolling 12 months of operating income. The operating income side is providing break-even results at best, and all the anecdotal accounts from Las Vegas point to low traffic. Meanwhile, capital has been drained over the exhaustive (and utterly expensive) expansion of multiple resorts in the Cotai Strip in Macau, and the Marina Bay Resort in Singapore.

We got word last week that Singapore would work with Las Vegas Sands to get the funding needed to finish up the Marina Bay resort, but I estimate that between $2.5 and $3 billion is needed to both ensure consistent work on the construction in Macau and restore enough capital to meet 4th quarter covenants.

It’s not about whether Adelson can get a good rate on whatever capital is available out there. It’ll be a horrible rate with horrible terms, and he will likely have to give up more convertibles or dilutive equity rights. However, even when I throw in large margins of safety around cost of capital and operating earnings, I still see underlying property and asset values well above the current enterprise value of $12.3 billion.

Like Sands through the Hourglass…

The clock is definitely on, not just for the 4th quarter but also for all of 2009. Adelson absolutely must keep going full bore with construction on the Cotai Strip, or else he faces a possible loss of all land and in-process construction. It’s a script with all the drama of Vegas itself.

Disclosure: The author does not hold a position in LVS.

No comments: