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Fitch Rates Sands China Ltd.'s Senior Notes 'BBB-'; Affirms IDR.

New York: Fitch Ratings has assigned a 'BBB-' rating to Sands China Ltd.'s (SCL) announced senior unsecured notes. In addition, Fitch has also affirmed the Issuer Default Ratings (IDRs) for Las Vegas Sands Corp. (LVS) and its subsidiaries (including SCL) at 'BBB-' and the existing secured debt at 'BBB'. The Rating Outlook is Positive.

The use of proceeds includes refinancing the secured VML credit facility ($4.8 billion outstanding as of June 30, 2018) and for general corporate purposes, which includes capital expenditures. In Macau, LVS is rebranding Sands Cotai Central (SCC) into the Londoner and adding suites at the St. Regis tower and adjacent to the Four Seasons. Total budgeted cost for the Macau projects is $1.2 billion.

The recent Outlook revision to Positive reflects Fitch's increasing confidence in LVS' ability and willingness to manage its gross leverage target of 2.0x-3.0x through a major development cycle (e.g. Japan integrated resort [IR]). Fitch believes LVS will have sufficient resources to delever, should a major development cause pro forma leverage to exceed LVS' target.


Financial Policy Commitment: Fitch is becoming increasingly confident in LVS' ability and willingness to manage its gross leverage target of 2.0x-3.0x through a major development cycle. If it becomes evident that the 3x target is not achievable within a reasonable ramp up window (approximately one year), Fitch believes LVS would take steps to delever, given the company's ample financial flexibility. For example, LVS could reduce debt with the ample excess cash on its balance sheet or its FCF, including the FCF generated by the project. In context of reasonable assumptions for the Japan project, should LVS win a major license, Fitch believes that it is achievable for LVS to maintain pro forma gross leverage under 3.0x; and under more conservative scenarios to be in position to delever to below 3.0x in a reasonable time period (one to two years). In the Japan development scenarios, Fitch assumed 65% LTV, $8 billion-$12 billion development cost and $1 billion-$2 billion EBITDA.

Financial Policy Track Record: LVS' public gross leverage target is 2.0x-3.0x, reiterated on the second-quarter 2018 earnings call (Fitch-calculated leverage is about 0.5x higher compared to LVS' methodology). Amid deterioration in Macau operations in 2015, LVS stopped share buybacks, reduced debt and decelerated dividend growth maintaining gross leverage at or below 3.0x. With Macau recovering, the company is now poised to ramp up its shareholder friendly actions, but Fitch expects the company will manage these activities within its stated target leverage parameters.

Development Pipeline: With The Parisian complete, LVS is in position to start generating positive FCF, which can be applied to returning cash to shareholders or funding development capex. LVS will spend $1.2 billion in Macau over the next few years converting SCC into the Londoner and building out two additional suite towers aimed at further bolstering LVS' base mass and premium mass market position in Macau. LVS is in a good position to bid on an IR license in Japan, for which the company said it is ready to invest $10 billion. Although the IR implementation bill passed the Diet this month, Fitch does not expect heavy capex spending in Japan to occur until 2021 at the earliest.

Macau on Solid Footing: Fitch forecasts 14% growth in Macau gross gaming revenues for 2018, which reflects the continued health of VIP and premium mass segments, albeit with some deceleration from 2017. We expect LVS' Macau revenues to grow at a slower pace given new supply competing for the mass market and the potential construction disruption at SCC. Fitch maintains a positive long-term outlook on Macau supported by the expanding middle class in China and the development of infrastructure in and around Macau. Fitch believes that the government will take a programmatic approach to renewing the gaming concessions expiring 2020-2022. Gaming is a major source of employment and tax revenues and the concession holders, LVS in particular, scored well in the government's mid-period review.

Improving Financial Flexibility: Pro forma for the Sands China refinancing, LVS' consolidated capital structure will be roughly half unsecured compared to fully secured before. A greater mix of unencumbered assets increases LVS' financial flexibility and is viewed favourably by Fitch. Prior to the refinancing, Fitch was comfortable with LVS at investment grade, despite its fully encumbered capital structure, due to its conservative secured debt levels relative to the asset value and the company's sizable cash balances. As LVS migrates higher in the 'BBB' category, unsecured debt mix will be an increasingly important ratings driver.


LVS' IDR reflects the company's strong financial profile, which can comfortably withstand cyclical-related operating pressures in the context of the financial parameters consistent with an investment-grade IDR. Other key rating drivers include LVS' commitment to a conservative financial policy, strong liquidity profile, including discretionary FCF, and high-quality assets in attractive regulatory regimes. LVS' closest publicly rated peer is Crown Resorts Ltd (IDR BBB/Stable), which has a long-standing conservative financial policy and great monopolistic positions in major Australian markets, albeit with less diversification than LVS. Crown manages its net leverage below 2.5x.


Fitch's Key Assumptions Within Our Rating Case for the Issuer:

--Sands Bethlehem sale completed in early 2019. The sale and recent U.S. $1.35 billion term loan proceeds used for share buybacks;

--2018 revenue growth of 4%, 12% and 6% in Las Vegas, Macau and Singapore. Mid-single-digit growth in Macau and low-single-digit growth in Las Vegas and Singapore, thereafter;

--Property EBITDA margins around 26%, 35% and 55% in Las Vegas, Macau and Singapore, respectively;

--$1.2 billion of growth capex in Macau in the next few years related to the Londoner project. Roughly $500 million of run-rate maintenance capex thereafter, a bulk of which is at the Macau properties;

--No major development capex beyond maintenance capex and the capex specified by the company in Macau;

--Sands China unsecured notes are issued in second half 2018 to refinance the existing VML secured credit facility and fund the Macau development capex.


Developments that May, Individually or Collectively, Lead to Positive Rating Action

--The company maintaining its existing financial policies and leverage remains below 3.5x and 3.0x on a gross and net basis, respectively, including through a major development cycle;

--Greater clarity with respect to the funding and ROI prospects of a Japan IR development in the event LVS wins a license in Japan. However, Japan development risks are partially mitigated by LVS' conservative financial policy;

--Continued improvement in financial flexibility, which could include increases in excess cash balances or continued migration toward an unsecured capital structure;

--Greater clarity with respect to the Macau concession renewal would be viewed positively by Fitch.

Developments that May, Individually or Collectively, Lead to Negative Rating Action

--A downgrade is unlikely in the near term given the company's strong financial profile. However, negative rating pressure could be caused by leverage exceeding 4.0x on a gross basis and 3.5x on a net basis for an extended period, likely driven by pursuing multiple large-scale projects at once or deviating from its articulated financial policies.


LVS' liquidity is strong, with $4.0 billion in excess cash net of $400 million in estimated cage cash as of June 30, 2018. LVS also has $3.0 billion of revolver availability for total $7.0 billion of available liquidity.

Maturities are manageable with the company recently extending its U.S. and Singapore facilities' maturities. Singapore facility's amortization starts in 2022 with the final maturity in 2024, and the U.S. facility does not mature until 2025. Macau maturities will also be extended as a result this announced refinancing of the VML credit facility, which would otherwise begin to amortize in 2020.

LVS' growth capex pipeline is manageable now at about $1.2 billion. Capex is Macau focused and is geared toward rebranding Sands Cotai Central to the Londoner and building out suites at shell space available at the St. Regis tower and at a tower adjacent to the Four Seasons. Fitch believes there is a good chance that LVS wins a license bid to develop a large scale IR in Japan. LVS stated that it can spend $10 billion on the resort should it win a license. Japan lawmakers recently passed the IR implementation bill, and Fitch estimates that the license RFP process will start 2019 with heavier capex spending not starting until after 2021.


Fitch has assigned the following rating:

Sands China Ltd.

--Senior unsecured notes 'BBB-'.

Fitch has affirmed the following ratings:

Las Vegas Sands Corp.

--IDR at 'BBB-'; Outlook Positive.

Las Vegas Sands LLC

--IDR at 'BBB-'; Outlook Positive;

--Senior secured credit facility at 'BBB'.

Sands China Ltd.

--IDR at 'BBB-'; Outlook Positive.

VML US Finance LLC

--IDR at 'BBB-'; Outlook Positive;

--Senior secured credit facility at 'BBB'.

Marina Bay Sands Pte. Ltd.

--IDR at 'BBB-'; Outlook Positive;

--Senior secured credit facility at 'BBB'.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Geographic Code:9JAPA
Date:Oct 30, 2018
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