THE WALL STREET JOURNAL ONLINE
Macau Rejects Sands Request for Cotai Rights
By Kate O’Keeffe
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HONG KONG—Las Vegas Sands Corp. said Thursday the Macau government 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 policy risks associated with investing in the booming market.
Sands China Ltd. 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 hadn’t been approved, Las Vegas Sands said in a filing with the Securities and Exchange Commission.
Macau, set to rake in four times the gambling 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 $6 billion on projects in the area.
The Chinese territory, where gambling revenue has soared 57% so far this year, is a crucial market for U.S.-based casino operators battling anemic growth in Las Vegas. However, policy risks remain high, with local and Beijing officials consistently advocating more moderate growth in the gambling industry. Earlier this year, the Macau government said it would put a strict limit on the number of new gambling tables in the region and on the number of foreign workers businesses could bring to Macau, throwing a wrench into casino operators’ massive expansion plans. In 2009, mainland China’s imposition of visa restrictions on its citizens, the majority of Macau’s patrons, hit gambling revenue in the territory.
Las Vegas Sands’ shares fell 4.2% to $49.17 in 4 p.m. trading Thursday on the New York Stock Exchange after hitting a low of $47.20 earlier.
Company spokesman Ron Reese 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 said 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. 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 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 hurt Macau stocks “as it highlights a willingness to control growth through increased government intervention.”
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 isn’t 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 $4.1 billion project on sites 5&6, whose construction has been delayed because of the government-imposed labor shortage limiting the number of foreign workers. The company, after announcing several delays, has most recently said the project’s completion date isn’t currently determinable with certainty given the inadequate number of construction workers. Analysts have said they expect the first two phases of the casino-resort being built on sites 5&6 to begin operation 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. Mr. 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 Mr. 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. Chief Executive Ambrose So said in an interview that the Hong Kong-listed company had sent a letter to the government asking for permission to take over sites 7&8.
Mr. 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., 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.
Alexandra Berzon contributed to this article.
