Stake sale sparks drop in Sands China shares

Macau gaming operator closes 2.06 per cent lower after US fund cashes out US$1.38 billion and reinvests amount in Las Vegas parent company

PUBLISHED : Thursday, 29 May, 2014, 12:00am
UPDATED : Thursday, 29 May, 2014, 4:38am

Sands China shares fell 2.06 per cent yesterday, the most in three weeks, after American fund Waddell & Reed sold a US$1.38 billion stake, reinvesting the proceeds in the Macau casino operator's Las Vegas parent company.

Sands closed at HK$57.05, with analysts saying it was a reflection of investor concerns about a crackdown on mainland money transfers, fleeing junket operators and a planned smoking ban.

However, Alison Law, a regional head of consumer research at Daiwa Capital Markets, said: "I do not interpret this as the fund turning bearish on the stock as Sands China is the major profit contributor to Las Vegas Sands. I believe the switch in holdings could be due to the fund's intention to diversify its regional gaming exposure."

The subsidiary accounts for more than 60 per cent of group earnings.

Another analyst, who declined to be named, said the sell-off would position the fund should the Japanese gaming market open up.

"There's clearly a lot of similarity in these two companies. The majority of Las Vegas Sands [revenue] comes from China but what Las Vegas Sands has that China does not is the ability to develop new gaming jurisdictions," he said. "Japan is a major focus for every single gaming company in the world. If Japan legalises casinos, owning shares of Las Vegas Sands would give you exposure for the growth pipeline.

In February, Sands' chairman Sheldon Adelson said the group would be willing to invest US$10 billion in Japan.

Bloomberg gaming analyst Tim Craighead said the Japanese market could be worth "well over US$10 billion" in annual revenue to integrated resort operators.

However, Craighead added a lack of consensus in the Japanese legislature meant a delay was looking more likely, "especially considering the current Diet session ends in a few weeks".

Law said she remained bullish on the Macau gaming sector in the medium to long term.

"In the near term, the sector will remain volatile on the back of concerns over the clampdown on the use of the UnionPay card, smoking ban and junkets fleeing," she said.

Reports this month said the authorities were cracking down on the use of UnionPay cards in Macau to circumvent mainland currency controls.

At the start of the month, one of Macau's junket operators disappeared, leaving debts of US$1.3 billion and on May 15, the Macau government announced that all mass market casino floors must be 100 per cent smoke-free by October 6.