LAS VEGAS SANDS MOVES TOWARD HONG KONG INITIAL

C O N F I D E N T I A L SECTION 01 OF 02 HONG KONG 001628

SIPDIS

STATE FOR EAP/CM

E.O. 12958: DECL: 08/21/2019
TAGS: ECON EFIN EINV ETRD MO HK CH
SUBJECT: LAS VEGAS SANDS MOVES TOWARD HONG KONG INITIAL
PUBLIC OFFERING, CONSULTS USG ON TWO PROPOSALS

Classified By: Acting Consul General Chris Marut, reasons 1.4 (b) and (
d)


1. (C) Summary: Las Vegas Sands (LVS) announced on August 20
that it submitted an application to complete an initial
public offering (IPO) in Hong Kong. The move to sell a
minority interest in its Macau-based operations came
approximately one month after competitor Wynn Resorts made a
similar announcement. Although visitor arrivals and gaming
revenues in Macau remain significantly below 2008 levels, and
the timing for an IPO is less than ideal, LVS requires
external funds to restart construction on its multi-billion
dollar, half-finished hotel/casino projects in Macau. As a
means to increase its expected operating earnings and boost
its IPO proceeds, LVS wants the PRC to loosen restrictive
visa policies toward Macau that were implemented in 2008.
LVS on August 18 approached the U.S. Department of Commerce
(DOC) in Washington on two proposals: the first to create a
trade show and convention visa for PRC visitors to Macau, and
the second to establish an "anti-corruption" task force
composed of PRC and USG officials together with casino
operators in Macau. Post understands that LVS has asked the
DOC to arrange a meeting soon with Ambassador Huntsman in
Beijing to discuss their proposals. End summary.


2. (C) Comment: LVS and Wynn are attempting to complete IPOs
in Hong Kong during the most severe gaming downturn to hit
Macau in years. The regional economic outlook shows
improvement but remains uncertain, the PRC's visa
restrictions remain in place (though rumors of near-term
easing abound),and publicly traded gaming company shares
remain far below their prior year valuations. Each company's
unique circumstances have driven their IPO decision-making
processes. Wynn is one of the world's financially strongest
casino operators and does not need additional capital to
survive or complete its ongoing construction projects.
Industry observers thus believe Wynn's IPO will likely sell
only a small minority interest in its Macau operations and
position the company to quickly complete a much larger
follow-on share offering in 2010, if market conditions
significantly improve. Those funds could be used to purchase
or build additional Macau properties on an opportunistic
basis. LVS, on the other hand, has required large cash
infusions during the past year from its majority shareholder
and Chief Executive Sheldon Adelson. An IPO in Hong Kong
would likely enable LVS to raise the funds needed to complete
its construction projects in Macau. The LVS request for USG
consideration of its two Beijing-directed proposals should be
examined not only on its own merit, but also understood in
light of the planned IPOs of Wynn and LVS. Public knowledge
of USG support for LVS' proposed initiatives would likely
increase the attractiveness (and net proceeds) of the IPOs.
Gaming investors welcome any signal that the PRC may loosen
its visa restrictions. End comment.

Macau Gaming Slump Drags On
--------------


3. (U) Macau remains mired in the first extended gaming slump
since foreign concessionaires began opening casinos in 2003.
PRC restrictions on Mainland Chinese visitors to Macau, fears
about H1N1 influenza, and the global economic slowdown have
combined to push Macau's gaming sector into negative growth.
Visitor arrivals and gaming revenues declined 11 percent and
12 percent, respectively, during the first six months of 2009
on a year-over-year basis.

Las Vegas Sands to List Its Macau Operations
--------------


4. (U) Despite the economic downturn, LVS on August 20
submitted an application to the Hong Kong Stock Exchange
(HKSE) to complete an IPO of a minority interest in the
company's three casinos/hotels in Macau. The Hong
Kong-traded holding company will own only LVS assets in
Macau, and the Hong Kong shares will trade independently of
LVS shares on the New York Stock Exchange. Following the IPO
announcement, LVS shares gained over three percent in New
York. LVS must now wait at least 25 business days for a
hearing with the HKSE's Listing Committee, to be followed one
week later by the Listing Committee's decision to proceed
with the IPO. The LVS announcement followed a similar
application in July 2009 by Wynn Resorts to move forward with
its own IPO. Given the specialty sector status of Macau
gaming shares, industry observers believe the two companies
will compete for a limited pool of institutional
funds/investors.

HONG KONG 00001628 002 OF 002




5. (U) The Hong Kong IPO application by LVS was enabled by an
agreement reached on August 13 between LVS and its lenders
that amended the terms of the company's USD 3.3 billion Macau
credit facility. In addition to granting approval for the
IPO, the credit facility amendments included six quarters of
financial covenant relief and approval to issue up to USD 1.5
billion of new debt, subject to certain conditions. The
Macau credit facility's interest rate increased to LIBOR plus
5.5 percent - a large spread commensurate with LVS' poor
credit risk ratings.

LVS Maneuvers In Advance of IPO
--------------


6. (U) IPO proceeds are typically underwritten and fixed in
advance of the IPO date, when the company and its investment
bank advisor agree upon a valuation for the company. That
figure is designed to closely approximate the market's
expected valuation of the company on the first day of trading
in the company's shares. Two primary factors govern the
company's market valuation: its perceived sustainable
earnings power, and the valuation multiple assigned by
investors to the company's expected earnings. Should the PRC
decide to loosen visa restrictions on Chinese visitors to
Macau, the earnings of Macau's gaming operators (and probably
also the multiple assigned to those earnings) would increase.
This would boost market valuations for Macau's gaming
companies and enable LVS and Wynn to increase their IPO
proceeds on that portion of ownership they decide to sell.


7. (C) LVS recently approached the U.S. Department of
Commerce (DOC) in Washington to discuss two proposed
company-sponsored initiatives. The first would involve PRC
creation of a special visa class "for Chinese citizens
wishing to travel to Macau to attend trade shows,
conventions, exhibitions, and other meetings." LVS believes
this step would facilitate diversification of Macau's economy
to include greater non-gaming revenues - a goal shared by
both the PRC and the government of Macau. The second
proposal calls for creation of "a public-private task force
on corruption" in the PRC, to include representatives of the
PRC, USG and the casino operators in Macau. The latter
initiative would be designed to help address Beijing's
concerns about corrupt government officials gambling away
public funds in Macau - concerns that likely continue to play
a central role in the PRC's restrictive visa policy toward
Macau. The LVS proposals were forwarded by DOC to the
Department's Hong Kong desk. Through its DOC contacts, LVS
is attempting to arrange a meeting with Ambassador Huntsman
in Beijing to discuss the proposals.
MARUT