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China visa rules raise worries

3 October 2008

MACAO -- A new round of visa restrictions by the Chinese government that impedes the number of visitors into Macau was not well-received Thursday by Wall Street.

Shares of Macau casino operators Las Vegas Sands Corp., MGM Mirage and Wynn Resorts Ltd. fell to new levels as investors, already spooked by sinking gaming revenues on the Strip, worried that Macau earnings could also be depleted.

"The repeated visa tightening could create significant problems for Macau operators," JPMorgan gaming analyst Joe Greff said in a research note. "We continue to believe investors are best-served on the sidelines in the near term."

Shares of Las Vegas Sands, which operates two Macau casinos including the massive Venetian Macau and is spending $12 billion to build out a dozen resorts on the Cotai Strip, fell to an all-time low of $26.51 Thursday on the New York Stock Exchange. The company suffered a 13 percent decline on Wednesday. Las Vegas Sands was down $4.81, or 15.36 percent, Thursday.

The overall figure is below Las Vegas Sands' initial public offering price of $29 from December 2004.

Any improvement or deterioration in cash flow, given the company's existing and future debt levels, can have a "significant" impact on the stock price, Morgan Stanley gaming analyst Celeste Brown told investors when she downgraded the company's shares Thursday.

Meanwhile, MGM Mirage, which opened the $1.25 billion MGM Grand Macau last December, fell $3.23 or 12.06 percent, to close at $23.56. Wynn Resorts, which operates the Wynn Macau and is building a hotel expansion, dropped $6.35 on the Nasdaq National Market, or 7.92 percent, to close at $73.84.

Three times in the past five months, the Chinese government has restricted visitation from mainland China into Macau, robbing casinos of a large portion of their day-trip gamblers.

Deutsche Bank gaming analyst Bill Lerner said the visa restrictions have affected the market, slowing the growth of both gaming revenues and visitor volume.

"We view these restrictions as a strong signal by the government to control the extraordinary growth in the Macau market," Lerner told investors. "We anticipate these restrictions will be temporary, and will be removed when the government achieves multiple goals."

Lerner said Chinese leaders want a material slowdown in market growth and a limit on the outflow of mainland currency into Macau.

According to Honk Kong's South China Post, the change went into place Wednesday. Residents from the Guangdong province, which has 70 million citizens and is one of Macau's largest source of customers, can only visit the casino enclave once every three months. Before the restriction, Guangdong residents were allowed a seven-day Macau trip once every two months.

A Chinese official was quoted by the newspaper as saying the government was still trying to gather accurate information about the new travel restriction.

On Tuesday, when Las Vegas Sands Chairman Sheldon Adelson loaned the company $475 million, he said the company's business strategy remained the same.

In an interview before the Aug. 28 opening of the $1 billion Four Seasons Macau, Las Vegas Sands President Bill Weidner said he wasn't worried about restrictions because they didn't affect visitation from China's major cities, such as Beijing and Shanghai.

"Visitors from those cities are staying two or three days and that's the visitor we want to bring to Macau," Weidner said in August.

Also, Las Vegas Sands has focused on attracting customers to The Venetian Macau from outside the region, such as from Japan and Korea.

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