LVS Plans Hong Kong IPO

Las Vegas Sands Corporation (LVS - Snapshot Report) is planning for a Hong Kong initial public offering (IPO) for its Macau assets next month. The company intends to raise up to $2.5 billion through the IPO. The offering is intended to complete in about four weeks after receiving regulatory approval for offering and listing.

In September, Las Vegas announced the infusion of up to $600 million of capital through the sale of exchangeable bonds to strengthen up its balance sheet. The bonds will be compulsorily exchanged into common stock of its Macau unit after the unit's pending IPO on the Hong Kong Stock Exchange.

Rival company Wynn Resorts (WYNN - Snapshot Report) held its IPO for its Macau assets earlier in October. Wynn Macau has experienced a strong debut in the Hong Kong stock exchange. Wynn sold 1.25 billion shares or a 25% stake in its Macau business, which represented Hong Kong's second-biggest IPO of the year.

Other rivals -- MGM Mirage (MGM - Snapshot Report) and its Macau, China, casino partner, businesswoman/tycoon Pansy Ho -- are also planning to expand their casino operations in Macau and are contemplating an IPO as well.

Macau has become an attractive destination for casino companies such as Las Vegas Sands, Wynn Resorts and MGM, who are investing billions for expansion on this island. Macau has survived the economic downturn relatively well. It has generated HK$105.6 billion ($13.5 billion) of gross gaming revenue in 2008, more than double the revenue generated by the Las Vegas strip. Also, visa restrictions had recently been lessened by Beijing to allow mainland tourists to visit Macau once a month rather than twice a year.

However, recently, government officials of Macau met with six major casino operators and concluded that limitless expansion of the Macau gambling sector may be harmful to the society. Significant expansion of the gambling business in Macau has encouraged corruption, addiction and prostitution in that area.

The government is considering regulations like raising the entry age limit for casinos to 21 years from 18 years, limiting the number of tables per casino and modifying zoning laws to compel slot machine halls away from residential areas and into commercial zones.

We think that such regulations will pose a threat to casino operators in Macau, though oversupply may be limited in the region. Pending further development, we continue to hold a Neutral recommendation on the shares of Las Vegas Sands, Wynn Resorts and MGM Mirage.