Inside Asian Gaming

INSIDE ASIAN GAMING | August 2009 12 Singapore L as Vegas Sands Corp. (LVS) remains under some pressure regarding its Macau project debt. As a result, analysts and investors are interested to know what difference, if any, the opening of its Marina Bay Sands (MBS) integrated resort in Singapore will make to the fortunes of the company. CLSA Asia-Pacific Markets, an independent brokerage and investment group, has attempted to give some insight into that issue following a recent investors’ site visit in Singapore and discussion with LVS executives. AaronFischer,CLSA’sDirectorofGaming&LeisureResearch,based in Hong Kong, and his colleagues Dhruv Vohra and Jon Oh, based in Singapore and the United States respectively, cover the topic in their recent report ‘Red Dot Roulette’. In case readers are wondering, Singapore’s leaders and citizens often refer self deprecatingly to their city state as the ‘red dot’—probably because of map makers’practice of using red dots to indicate the capital cities of countries. “A review of consensus [opinion] suggests that the Ebitda [earnings before interest, taxation, depreciation and amortisation] contribution [of Marina Bay Sands to LVS] is expected to be between US$700 million to 800 million in 2011-12, which represents around 40%of group Ebitda. Also, the valuation contribution is also expected to be around the same level,” says the CLSA report. The team also gives useful figures on MBS’s expected table and slot inventory and compare them to those of the other LVS properties in the US and Macau. “The company hasn’t disclosed the exact number of gaming tables and slots, but we can see from the following comparison that MBS will be one of the largest casinos for the group, alongside Venetian Macau,” say the authors. The numbers “During 2008, the company had provided guidance for 2012 Ebitda of US$1.2bn. Understandably, the company is no longer maintaining that guidance, as the world is now at a different place than where we were previously,” says CLSA. “Management believes that MBS will generate the highest Ebitda out of any casino globally, which we also tend to agree with. Ahead of finalising our ownmodel, it appears that consensus is expecting 2012 Ebitda of around US$700-800m. This would depend on forex [foreign exchange] rates and also the mix of VIP and mass-market business. Also, we would need further clarity on a number of regulations,” the CLSA team adds. “We did not drill into too much detail on debt covenants and financing plans, and we will follow up with management on the finer points in due course. Nonetheless, we understand that the debt covenants kick in after the first full four quarters. When opened, the credit facility will not be completely drawn down with payments made in 2010 and MBS will be still paying out for capex [capital expenditure] until 2Q2011—around US$500m in 2011. By that point, management should be generating at least S$800m in Ebitda or there may be some debt covenant issues. The current borrowing cost is between 3-3.5%, which is based on Sibor [Singapore Interbank Offered Rate] plus a minor spread. “Gaming will contribute a significant contribution to earnings. This is not implying that non-gaming will under perform. In fact, management expects the hotel, retail and other components to be very competitive in Singapore. (We believe these components will perform exceptionally well). However, we need to recognise that the average bet in Asia is around US$100 versus Las Vegas at closer to US$20. This comes down to the greater propensity to gamble of Asian players versus American customers. “Previous guidance [from LVS on its Singapore business] suggested that gaming Ebitda would represent around 75% of Bay Watch How important is Marina Bay Sands for LVS? Table and slot comparison by property Source: CLSA Asia-Pacific Markets Units Tables Slots Sands Bethlehem na 3,000-5,000 Venetian Las Vegas 130 1,550 Palazzo Resort 130 1,375 Sands Macau 505 1,250 Venetian Macau 700 2,200 Four Seasons Macau 120 180 Marina Bay Sands c.750 1,500 Artistic scale model of the Marina Bay Sands