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Breakingviews

Breakingviews - It’s time for Sheldon Adelson to leave Las Vegas

The Sands Expo and The Palazzo resort are shown in Las Vegas, Nevada, U.S., August 25, 2016. Picture taken August 25, 2016. To match special report USA-VEGAS/SHELL REUTERS/David Becker TPX IMAGES OF THE DAY - D1BEUEGOYQAB

HONG KONG (Reuters Breakingviews) - Sheldon Adelson’s Las Vegas Sands is doubling down on Asia. The $37 billion casino operator may sell U.S. assets for $6 billion, which it can use to build its footprint in the faster-growing region. That would thin its hedge against rising risks in Chinese Macau. But the Nevada market is saturated, and a marginal contributor to revenue. Sands could use the cash for other things.

Asia already accounted for some 90% of Sands’ $5.4 billion adjusted property EBITDA last year, before the pandemic struck, according to its latest annual results. Growth prospects look rosier there, thanks in part to middle-class Chinese punters, barred from playing at home, who are travelling as far as Australia to gamble. In the United States, gamblers are spoiled for choice, which makes growth a challenge. Nine out of 10 Americans lives within an hour’s drive of a casino, according to Credit Suisse.

Sands does have an overdependence on China. With the borders effectively closed, the Macau business flipped to a $478 million loss in the first nine months of 2020. Beijing’s policy changes can have a big impact too. The concession comes up for renewal in 2022, and if U.S.-China relations sour further, Adelson’s close relationship with President Donald Trump make his renewal application a tempting target for retaliation.

But there are other hedges besides Vegas. Singapore, for example, is a gateway to Southeast Asia, offering a route to diversifying the customer base. The Marina Bay resort was the only Sands property to turn a profit in the first nine months of 2020. Sands already plans to invest another $3.3 billion in its resorts there. There are also potential opportunities in countries like Japan and Vietnam.

If Sands can secure the $6 billion it is seeking for the Las Vegas unit, as reported by Reuters, it could strengthen its strained balance sheet, with some left over for an M&A war chest. A distressed company like Australia’s Crown Resorts would be within reach, with an enterprise value of around $3.5 billion, according to Breakingviews calculations.

A diversified Asian strategy could pay out better for Las Vegas Sands’ investors than Las Vegas itself. But the company will need a new name.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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