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Las Vegas Sands downgraded on Macau, liquidity

Jan 9, 2009 12:00 AM
Staff & Wire Reports |

Tightened visa restrictions in Macau and lingering liquidity concerns still weigh on Las Vegas Sands Corp., an analyst said Wednesday.

Bill Lerner of Deutsche Bank downgraded the Las Vegas-based casino operator to "Hold" from "Buy," saying in a client note that he was pleased the company has concentrated more on lowering costs, but that Macau's visa limitations could hinder its performance.

Macau, the only place in China where casinos are legal, has seen its gambling industry cool recently after years of booming growth since Beijing began curbing the frequency and duration of travel there by mainland residents. The global financial and economic crisis also has taken a toll.

In October, the South China Morning Post reported that the Chinese gambling enclave imposed stricter limitations on mainland Chinese visitors, allowing them to visit Macau only once every three months instead of once every two months.

The company said in December that it would cut 500 jobs at its Venetian Macao casino, including 100 managers, and planned to cut back workers' hours. The laid-off employees represent 2 percent of its work force in Macau.

Las Vegas Sands may also be hurt by continued supply growth in Las Vegas in 2009 and 2010, Lerner added.

The analyst suggested that Las Vegas Sands' latest stock gains - more than doubling in value in the past month - have come from its recent capital infusion as well as a perception that credit markets are loosening up.

In November the Sheldon Adelson-led company completed an offering of common stock, preferred stock and warrants that provided about $2.1 billion of additional capital, helping to ease concerns about the company's ability to continue to operate. The move more than doubled the number of outstanding shares and significantly diluted shareholder value.

But Lerner remains concerned about Las Vegas Sands' leverage covenants.

"We believe Las Vegas Sands could be tight relative to its leverage tests in quarters over the next year as its covenants tighten," he wrote in a client note.

The casino sector has been pressured as consumers curb discretionary spending due to the continued housing slowdown, diminishing credit, escalating food costs and unemployment concerns.

Shares of Las Vegas Sands dropped $1, or 11.9 percent, to close at $7.40. The stock has lost most of its value in the past year, down 92 percent from its 52-week high of $95.26.

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