The Sands Macao, the first foreign-owned casino in the world's largest gaming market, may soon go on the block for a bargain basement price of about US$1.3 billion. Heavily indebted owner Las Vegas Sands is exploring the sale of the casino after recent attempts to offload luxury shopping centres attached to its Venetian and Four Seasons resorts in Macau met with scant interest, sources said. Las Vegas Sands has spoken with potential buyers about splitting the Sands Macao up into separate property and operating businesses. The company is mulling a sale and leaseback in which it would sell the building, continue running the 229,000 square foot casino floor under its gaming licence and pay its new landlord rent based partly on how the casino performs. The Sands Macao discussions began last week after talks to sell the shopping centres stalled because buyers found the US$1 billion price too high. 'It was kind of, 'OK then, if you don't want the malls, do you want the Sands?'' one source said, while confirming that the company's Macau gaming licence was not up for sale. Las Vegas Sands suspended work last year on a US$3.3 billion, 6,400-room resort project on Macau's Cotai strip to conserve cash amid the global recession and gambling slowdown. The company had US$10.8 billion of long-term debt at the end of last year. It warned that it was in danger of busting financial covenants but subsequently gained breathing space by selling US$2.1 billion in new shares. The company said recently that several parties were interested in investing in its various Macau businesses, but a spokesman declined over the weekend to comment on a potential sale of the Sands Macao. 'We will continue to evaluate all alternatives that provide us further financial flexibility and we will provide any necessary updates at the appropriate time,' said Las Vegas Sands vice-president of communications Ron Reese. Goldman Sachs, Las Vegas Sands' longtime financial adviser, held informal discussions about a sale and leaseback of the Sands Macao with property developers and private equity firms, a number of sources said. Goldman declined to comment. 'The Sands property is available,' a banker said. 'But it may not sell. People will want the casino licence, which is a licence to print money.' Because the process is at an early stage, Las Vegas Sands has not put a price on the property or sent out an information memorandum to interested parties. Floris Van Dijkum, the chief investment officer at Macau property investor Speymill Macau, calculated that a deal for the Sands Macao could be worth US$1.3 billion, based on the property's cash flow over the past 12 months and an interest coverage ratio of 2. Such a scenario would appear to represent a bargain basement price, reflecting a 7.5 per cent rental yield to potential buyers. This may look high, considering that investors in United States Treasury 10-year bonds are getting yields of only 2.9 per cent. However, analysts said the yield should be expected to price in the regulatory and competitive risks associated with owning a casino in Macau. CLSA gaming analyst Aaron Fischer was even more pessimistic, saying the 7.5 per cent yield was too low. If, for example, investors demanded a 10 per cent yield, the building's value would fall to US$1 billion. The Sands opened in 2004 as Macau's first western-style casino following the end of Stanley Ho Hung-sun's four-decade monopoly on gaming in the enclave. Las Vegas Sands famously made back its initial US$285 million investment in the property in less than 12 months, but the Sands has since been eclipsed by newer and glitzier properties, such as the Wynn Macau and Las Vegas Sands' own 3,000-room Venetian resort on Cotai. Last year, the Sands Macao recorded US$213 million of earnings before interest, tax, depreciation and amortisation. This amount was sharply below the US$372 million profit it made in 2007. All Macau casinos face a drain in profit if Beijing continues restricting mainland residents' visits to the gaming enclave. Mr Van Dijkum, who is not a buyer, because his fund does not invest in casinos, said the deal would be attractive to the right investor, because Sands Macao was still earning good money. 'This could be a very interesting financial investment for someone with significant spare change.' But a private equity investor with knowledge of the sale argued it was too risky. 'I don't see any private equity funds putting money into Macau's gaming sector, particularly that much money, because they are all just being incredibly cautious,' the investor said. Macau Fisherman's Wharf, a HK$2 billion theme park developed jointly by Mr Ho and Macau legislator David Chow Kam-fai, just completed a heavily discounted buyout of international hedge funds including Och Ziff and TPG-Axon, who invested US$400 million in its debt securities in 2006. Buyout houses Apollo Management and TPG Capital bought Harrah's Entertainment for US$27.8 billion in January last year. The US casino giant has struggled with its debt covenants ever since. Sources said Las Vegas Sands' Macau shopping centre auction generated lacklustre interest because would-be buyers were asked to shoulder low returns and bet big on bullish projections despite the global consumer slowdown and uncertainties in Macau.