Chinese government officials have rejected plans by Las Vegas Sands to build on two parcels in the gambling enclave of Macau's growing Cotai area, the casino-resort developer said overnight.
The Las Vegas company led by billionaire Sheldon Adelson said in a regulatory filing Thursday that the Macau government denied Sands a land concession.
Sands said the letter it received Thursday from Macau authorities gives the company 15 days to ask for a review of the decision or 30 days to take it to Macau's courts. Company officials said they're reviewing their options.
The parcels are part of 200 acres (80 hectares) Sands already is building on, where it said in 2006 it planned to construct several hotels, with space for gambling, retail and other amenities. Sands had deals in place to add 3,000 rooms branded and operated by Hilton, Inc., Fairmont Hotels & Resorts Inc. and Singapore-based Raffles Hotels & Resorts.
The company had not set a firm timeline for construction on the land, but said as recently as last month that it believed the government would lease it the parcels. Sands said in a Securities and Exchange Commission filing then that it planned to move forward as the economy improved, financing became available and it finished nearby developments already under way.
Sands said land concessions in Macau generally grant companies exclusive use of land for an initial term of 25 years with automatic extensions of 10 years. Sands said companies are required to pay premiums for each parcel, either in a lump sum or in semiannual payments, along with annual rent.
Sands said its belief that its plans would be approved was based on its experience obtaining concessions on five other parcels.
Sands said it had spent $102.4 million on the rejected developments as of Sept. 30.
Sands' shares dropped on the news, and some analysts quickly told investors the reaction created an opportunity to buy into the company. Analysts said their evaluations of Sands are based on models and projections that don't yet include the rejected developments.
But they were split on whether the decision would merely delay the development or should be taken as a sign that Chinese officials want to stanch development by Sands - and perhaps others - in Cotai.
Analyst Bill Lerner of Union Gaming Group said Macau's finance chief recently said growth of 3 percent to 5 percent per year makes sense, and land grants aren't made based on the needs of Macau's casino operators.
"This suggests to us that this concession denial could be technical and a function of timing, and that ultimately Sands should be able to develop," Lerner said. "On the other hand, perhaps SJM will be granted all or some of the sites for an opening beyond 2013."
SJM is casino mogul Stanley Ho's company, Sociedade de Jogos de Macau Holdings. Ho is known as the father of Macau's gambling industry, having run all its casinos for four decades until his monopoly ended in 2002.
SJM doesn't have a casino in Macau's Cotai area and has previously expressed interest in getting the parcels Sands was hoping to use and developing on them.
Analyst David Bain said confidence in the Macau government could be hurt if it makes exceptions for SJM and allows it to develop faster than expected.
"We believe it is negative for the investor perception with regard to the transparency and the objectivity of the Macau government," Bain said.
Bain said the denial raises some doubts about plans by Wynn Resorts Ltd. to build in Cotai. The company run by billionaire Steve Wynn does not have a land concession.
But Wynn said last month in a conference call to discuss earnings that construction would begin in a few weeks. Wynn's Cotai plans include 1,500 to 1,600 hotel rooms, roughly 500 table games and 1,300 slot machines, with 12 acres left over for further expansion.
Shares of Sands fell as low as $47.20 but were down $2.48, or 4.8 percent, at $48.86 in afternoon trading.