Inside Asian Gaming

INSIDE ASIAN GAMING | February 2009 26 Any contract termination at this stage, though, is likely to indicate a project suspension of at least a year and possibly more. A research report published before Christmas by investment bank Goldman Sachs indicated that LVS policy on plots five and six was likely to have a significant impact on the general gaming market in Macau and the economy as a whole. Resumption of LVS construction in 2010 could put extra pressure on Melco Crown Entertainment and Galaxy’s Cotai projects, suggested the report authors. The assumption behind that statement appeared to be that LVSwould execute the delayed project rapidly and move quickly to open a Sheraton Hotel and a Shangri-La property with accompanying gaming capacity on the plots. Opening MPEL is expected to open its City of Dreams integrated resort next door to LVS’s Cotai developments in the second half of this year. Francis Lui, Vice Chairman of Galaxy Entertainment Group, told Inside Asian Gaming that his company is likely to wait until the end of 2009 before announcing an opening date for its Cotai resort. He stressed, however, that this did not mean the opening date had in any way slipped back beyond 2010. He pointed out that external works were proceeding but that internal fit out was being delayed. The expectation was that market conditions would enable the company to re-negotiate contracts on internal fittings at more favourable terms, said Mr Lui. LVS for its part had previously told analysts that the cost of suspension of its plots five and six was likely to be US$880 million spread over a trading period from Q4 2008 to Q2 2010. But Kenneth Kay, Senior Vice President and Chief Financial Officer for LVS, told the LVS Q4 ’08 earnings call that the $880 million figure was a “worst case scenario”. “The way our contracts work over here, we had six months to go through a suspension, to see if financial markets change, etc,” explained Mr Kay. “Obviously, we’re about three months into that suspension and there’s a likelihood that they’ll [LVS in Asia] either go with termination or negotiate additional suspension periods with their contractors, but the $880 million was a worst case scenario. “We’re moving towards at least hitting that point where we have to determine the termination or additional suspension. The $880 million that we talked about was worst case. We think we’re going to do reasonably better than that. The amount spent to date is probably, I’m going to guess, in the range of $350 million.” Way forward WilliamWeidner, the company’s President and Chief Operating Officer, acknowledged the challenging trading conditions LVS is facing, but laid out the company’s strategy for developing its To Build or Not to Build? LVS faces an internal review soon on its currently suspended Cotai building projects Las Vegas Sands Corp (LVS) is to consider shortly whether to terminate existing contracts with construction firms working on plots five and six on the Cotai Strip™ in Macau. The news emerged during a conference call with analysts to discuss LVS’ fourth quarter results for 2008. Plots five and six were suspended by LVS in November 2008 in response to project funding challenges linked to the international credit crisis. The possibility of terminating existing contracts does not mean LVS has given up on developing the two Cotai land parcels. It relates rather to a technical issue. This is whether it will be more cost effective for LVS to seek extensions on existing contracts and so avoid any termination payments, or whether it would be better to relinquish existing deals, pay any relevant contractual penalties, and renegotiate new contracts, potentially at a lower price at a later date. LVS