The Sands of Saigon
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Las Vegas Sands (NYSE: LVS) announced back in December plans to create two enormous casinos in Vietnam, one in Ho Chi Minh City and Hanoi, patterned after the highly successful Marina Bay Sands they opened in Singapore in 2010. The projects, if they go off as announced would easily be the single biggest projects in the country’s history; bigger than the Bitexco Tower (sill mostly unoccupied) or even Intel’s $1 billion chip plant, which is the company’s biggest such facility.
Gambling in Southeast Asia is big business. For Las Vegas Sands the growth of their three existing casinos in Macau and Marina Bay accounted for five-sixths of their revenue. Net income for the quarter was $498.9 million coupled with a 18.7% operating margin. EBIDTA cash flow was an eye-popping $1.07 billion.
Low Hanging Fruit
The Marina Bay Sands saw revenue jump 45% in just its second year. With only two casinos in the richest country in the region less than two years old Singapore has drawn even with Las Vegas as the 2nd largest gambling locale in the world.
And it’s done so in two years.
The two casinos now account for 1.5% of Singapore’s GDP, have increased tourism 20% and employ some 35,000 people. And Las Vegas Sands just opened their fourth operation in Macau last month, the only administrative district in China where gambling is allowed. By contrast LVS’s competitor Wynn Resorts (NASDAQ: WYNN) is looking for $1.5 billion in financing for another facility in Macau’s Cotai Strip after Foxborough, Massachusetts residents elected anti-casino selectmen in early May. Wynn’s latest earnings were similar to LVS’s, down in Vegas (-8.1% revenue) up in Macau (+9.8%).
And that is the issue in this part of the world. Vietnamese and Chinese love to gamble but the governments of both countries take a dim view of it and do not sanction the local population to do so legally, hence there is an extensive black market for it all through both countries. Foreigners are allowed to gamble and there are a few small gaming rooms that cater to the Chinese who are flown in from Kunming.
To gamble internationally we have to do so with foreign currency; no one takes the Dong overseas which amounts to a $1 billion dollar per year drain on foreign exchange reserves and is Dong negative. In a country whose foreign exchange reserve balance is estimated at $15 billion U.S. Dollar equivalent, that is a significant source of Dollar demand.
Las Vegas Sands’ plans for Vietnam will not come to fruition until Vietnam legalizes gambling for locals; at least that is the latest word from CEO Sheldon Adelson. At this point the $6 billion carrot he is offering up has not been enough to sway Vietnam. And, though there is a draft decree making its way towards the Prime Minister’s desk it’s not expected to be signed.
Tourism in Cambodia is big business for Vietnam’s neighbor and Tianjin Union Development Group has begun construction on the very controversial $3.8 billion complex that is planned to be half the size of Singapore itself and will require the bulldozing of 35,000 hectares of land to build it. The complex will have its own port for cruise ships and be modeled after Cambodia’s real tourist attraction, Angkor Wat. The growing integration of ASEAN into the Asian Economic Community will result in a freer flow of people across the political borders of the region and that will change the political dynamic in China and Vietnam the same way it did in Singapore.
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