LVS Needs to Provide Capital to Sands China, Says Credit Suisse

Posted on: June 16, 2022, 01:08h. 

Last updated on: June 16, 2022, 03:30h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Las Vegas Sands (NYSE:LVS) needs to provide its Sands China unit with $413 million in cash to come into compliance with Macau’s new gaming laws, according to Credit Suisse.

Sands China
The Venetian Macau. Credit Suisse says Sands China needs cash from its parent company to comply with Macau gaming law. (Image: Luxury Lifestyle Magazine)

Analysts at the bank say Sands China is currently the only one of Macau’s six concessionaires that doesn’t meet a new provision in gaming law requiring operators to hold a minimum of $625 million.

According to the disclosures reported to the regulator DICJ, Sands China’s concessionaire remains the only entity with equity falling below the threshold,” says the Credit Suisse analysts. “This can be easily resolved [by a] capital injection from the listed [company] to the license holding subsidiary.”

Sands China’s net assets currently reside at $213 million, meaning it needs about $413 million to be injected to comply with Macau’s revised gaming regulations. The special administrative region’s (SAR) previous gaming law, passed in 2001, featured a minimum capital requirement of just $25 million.

Sands Can Easily Pick up the Tab

Following the recently completed sale of Venetian Resort and Sands Expo and Convention Center on the Strip to Apollo Global Management and VICI Properties for $6.25 billion, Las Vegas Sands has one of the sturdier cash positions in the gaming industry.

At the end of the first quarter, the Venetian Macau operator had $6.44 billion in cash on hand, according to MacroTrends.com. That implies the US-based parent can easily provide its China unit with the liquidity needed to comply with the SAR’s new gaming law. That’s a positive because there is no flexibility on the new capital requirement.

“The new wordings in Article 17 make it clear to us that operators will need to prepare MOP5 billion in cash — or deposits — and keep net asset value above MOP5 billion at all times during the concession period,” said JPMorgan analysts.

Fresh gaming regulations in the SAR are moving forward at a tenuous time for the territory’s gaming industry. It is still struggling with the effects of the coronavirus pandemic and Beijing’s related heavy-handed policy. Operators are sounding optimistic about Macau’s long-term prospects, but the near-term outlook is murky owing to travel restrictions, among other factors.

Other Macau Financing Needs

Capital injections to comply with gaming law are one thing. But Macau concessionaires are also grappling with financing needs simply to continue doing business.

Not only are analysts concerned about survivability timelines for the operators, but they’re also pondering the ability of gaming companies to procure financing. Earlier this week, Wynn Resorts (NASDAQ:WYNN) extended a $500 million credit revolver to its Wynn Macau unit, stoking speculation concessionaires are encountering difficulty obtaining capital from traditional lenders.

Morgan Stanley analysts said LVS may have to provide cash to Sands China. According to the bank, MGM China Ltd, Sands China, and SJM Holdings have less than a year’s worth of cash.