Macau Concern Spurs Las Vegas Sands Bearish Bets: Options

Stricter regulations in one of the world’s biggest gambling destinations are prompting traders to bet against casino owner Las Vegas Sands Corp.

The relative cost of bearish contracts versus bullish ones has surged about ninefold from a low in January to an 18-month high, data compiled by Bloomberg show. Las Vegas Sands has tumbled 12 percent after reaching the highest level in six years on March 6. In the same period, the Russell 1000 Index has gained 1.9 percent.

In Macau, the biggest market for Las Vegas Sands, authorities are cracking down on illegal money transfers and are considering tighter visa rules for mainland tourists. The measures, coupled with China’s slowing economy, may crimp growth for companies such as Las Vegas Sands, according to Matthew Beesley at Henderson Global Investors Holdings Ltd. His firm has sold shares in the casino operator.

“People are worrying about the business in Macau and for the right reason,” Beesley, who helps oversee $125 billion at Henderson, said by telephone. “There’s fear that you’ll see increased regulation from the mainland. It’s very easy for U.S.- centric investors to express a short view on China through Las Vegas Sands, as it’s a U.S.-listed company.”

Macau Regulation

Macau’s regulators and the police are stepping up measures to curb attempts by gamblers to circumvent Chinese currency controls. In February and March, police of the Chinese enclave made 12 arrests involving the use of card-swiping machines to transfer illicit funds to casinos from the mainland. Such frauds by Chinese gamblers could amount to $6 billion, Deutsche Bank AG wrote in a report earlier this month.

Separately, the Macau Secretariat for Security indicated this month that it may introduce stricter measures in July to check visa papers of those traveling to the enclave. Nomura Holdings Inc. cut on May 21 its estimate for full-year revenue growth in Macau to 14 percent from 17 percent.

Short seller Jim Chanos of hedge fund Kynikos Associates LP said this month on CNBC that he’s concerned about Macau casinos amid the campaign against corruption. While short interest was at 0.4 percent of Las Vegas Sands’ shares outstanding, lower than the average for Russell 1000 stocks, it reached the highest level in 15 months on May 19, according to Markit data.

Legal Casinos

The former Portuguese colony, the only place in China where casinos are legal, made up 64 percent of Las Vegas Sands’ revenue in 2013, data compiled by Bloomberg show. That’s up from 33 percent in 2004, the last year when revenue from the U.S. accounted for a greater share of sales than the Chinese enclave.

Bearish bets on Las Vegas Sands reflect concern that the company has more at stake in China, where growth is slowing, than in the U.S., where it’s picking up, Beesley said. China’s economy will expand 7.3 percent this year, the slowest pace since 1990, according to economists’ forecasts compiled by Bloomberg. The U.S. economy will expand 2.5 percent in 2014, the fastest pace since 2012, the projections show.

Billionaire Chairman and Chief Executive Officer Sheldon Adelson also faces obstacles in his plans for expansion in Japan. A lawmaker in the nation said earlier this month that a bill to legalize casinos, which would allow operators to set up resorts in time for the 2020 Olympics in Tokyo, may not pass in the current parliamentary session that ends June 22.

Puts, Calls

Options giving the right to sell Las Vegas Sands shares cost 3.8 points more than calls to buy, according to three-month implied-volatility data compiled by Bloomberg. The difference was 4.4 on May 21, the widest since November 2012.

Ron Reese, a spokesman for Las Vegas Sands, said the company would not comment on the options trading.

Las Vegas Sands has fallen 2.4 percent this year after a 71 percent surge in 2013. The shares trade at 19.8 times estimated earnings, down from 21.4 at the end of last year, data compiled by Bloomberg show.

The selloff in Las Vegas Sands is a buying opportunity, and concern over a government crackdown is overdone, according to a Citigroup Inc. note on May 27. Instead, gambling revenue should jump, with the number of hotel rooms in Macau more than doubling in the next few years, analysts led by Anil Daswani wrote, adding the stock to a list of Asia-focused companies to buy. They also said the Japanese gaming law that will establish locations and bidding rules should be passed this year.

“These concerns are overblown,” the analysts wrote of the potential regulatory restrictions. “LVS is one of our top picks on this theme and is a favored candidate for the license in Tokyo,” they said.

VIX, VStoxx

The Chicago Board Options Exchange Volatility Index, the gauge of Standard & Poor’s 500 Index options prices known as the VIX, fell 0.8 percent to 11.48 at 12:30 p.m. in New York today. The VStoxx Index, its European counterpart, rose 1.7 percent to 15.78.

Las Vegas Sands puts outnumbered calls for the first time since March this month. The ratio of options to sell versus wagers to buy reached 1.03-to-1 on May 19, data compiled by Bloomberg show. It was at 0.99 on May 28.

“There will be hiccups along the road,” Bryan Maher, a senior analyst at Craig-Hallum Capital Group LLC, said by phone. He has a hold rating on Las Vegas Sands. “When the stock ran away earlier this year, it was based on outlook for complete blue skies ahead and that legalization in Japan was coming sooner rather than later. It may happen, but you need to have a disciplined approach.”

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