Las Vegas Sands Corp. (NYSE: LVS) has been all over the news today on reports that the company may conduct an initial public offering for its Macau assets.  The company would like to raise $3 billion to $4 billion, but this would likely only be a part of that raise.  Some traders are trying to imply a $3 billion to $4 billion value on Macau based on some creative re-reporting of the Reuters figures.    What we wanted to do was figure out what the assets could fetch on their own in an IPO.  The bad news is that an outright sale right now is something we think is elusive, at least anywhere near what Sheldon Adelson would want to sell it for.  If you consider the current market values of Melco Crown Entertainment Limit (NASDAQ: MPEL) or Wynn Resorts Ltd. (NASDAQ: WYNN), the value for Macau is just not anywhere what it once was.

It is not just a recession to consider.  There is also the political risk issue because China can change terms with absolutely no notice.  Selling an IPO in Hong Kong might be an easier sell considering that it is closer to the direct market.  We are not so convinced that Americans and Europeans are ready to finance any and every IPO out of China or Hong Kong yet.  Particularly in this sector.

The Macau asset IPO may occur in Hong Kong rather than the United States, and this could complicate how to value the structure of the company if it still holds a significant post-IPO stake.  We are not sure yet if there are really 5 or 6 possible options for the properties or not.  In a pure capital-raising goal, the outright sale or sale of a large equity stake more sense in the immediate term.  But that also caps or kills upside if and when the economy recovers and those casino destinations command a large premium again.

The figure that is estimated as what is needed to be raised is about $1.5 to $2 billion just to complete those developments.  This is opinion, but our take is that this figure may be every bit of that.  Particularly if you include the entire region.  But in fair and open disclosure, that is not what Adelson reportedly indicated in his Reuters interview.  With all projects, the end game expenses can pile up at the end during the final stages.  Does that mean that developers can’t cut corners?  Absolutely not.  But our indications are that many of those Asian (and even domestic) projects have ended up coming in at much higher costs than originally projected.

We are not yet convinced that the Las Vegas Sands Corp. will end up back as a US-focused company with just a residual stake in its Asian expansion.  Imagine the let down if the entire growth of Macau, China, and Southeast Asia was a dud in another decade.  It seems almost unthinkable.

Also using a direct comparison for Wynn or Melco Crown is a bit unfair.  During a recession, can you compare new ‘hot properties’ to existing properties?  We think not. Putting a value on the endgame operations is also guesswork, even for those who can forecast the exact timing and degree of the return of growth to the region.  What happens if there is a hint of any outbreak of the next ugly-named virus?

Our take is that investors have determine whether they are comfortable that Adelson and friends in the company can make the magic happen.  Our bet is with him based on his recent abilities to fish the company out of the soup.  That is the case even if you consider nearly a 40% drop in the last 6 weeks. S hares are still up over 300% from the panic lows.

Whether or not any of these options come about, our concern here is what the value of all the combined properties in the region would be when you add in all of the new capacity to what is available today.  Our take is that there is still likely much room for recovery.  But the valuations we saw during the good times are probably above and beyond reach for the future near and far.

Jon C. Ogg

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