Marina Bay Sands - too big to let fail?

Source : Today - 8 Nov 2008

IN RECENT weeks, its top executives have been going around the region to raise funds - to stave off defaulting on its loans, a risk it admitted on Thursday amid doubt about the casino giant’s viability.

As Las Vegas Sands’ (LVS) troubles fed whispers about the fate of its US$4.2-billion($6.3 billion) Marina Bay project here, chairman and chief executive Sheldon Adelson this week met with the Singapore Government, some presumed to discuss financing issues.

On Friday night, LVS clarified that the meetings covered a range of subjects, from the “rapid pace of construction” of the integrated resort, to strong response to marketing efforts - and its pledge to see the project through.

Said Mr Adelson: “In light of recent turmoil in the global markets, I felt the need to personally reaffirm our commitmentto the success of Marina Bay Sands. I am pleased to say that the Singapore Government’s support of our project remains strong.”

The last, it would appear, could be an understatement. Commentators seem to think this is an undertaking the Republic would not, could not allow to fail.

“There is no doubt in my mind the Singapore Government will come in to ensure the project is completed,” said Mr Daniel Renshaw, a gaming analyst with Merrill Lynch, according to Time magazine.

The price of failure could be too high, politically and economically in the long term, some argue.

Marina Bay Sands is - in the words of Westcomb analyst Ng Wee Siang - a “showcase project” for the city-state, which is seeking to reinvent itself as a premium lifestyle destination choice. The IR, and its counterpart on Sentosa, are also vital to the country’s economic diversification strategy.

With both IRs primed to create 60,000 jobs and generate $5.4 billion in revenue when fully operational, they are major pieces of the jigsaw in the country’s future, said economist Song Seng Wun.

“In the context of a small economy like ours, a failure of the development could lead to significant and far-reaching losses in many areas, such as job creation, growth, tourism receipts and investment opportunities,” he said.

“Solutions will be found to ensure the success of the project.”

Member of Parliament Ho Geok Choo noted: “The Government has placed a huge stake of its reputation on this project because we went loud and clear when the decision to have casinos here was made.”

This announcement was momentous given the leadership’s unequivocal stance against having casinos in the past. Citing how leaders must have thought hard and long before deciding it was necessary, for the country’s future, to reverse this stance - a decision which roused a storm of domestic controversy - she said: “We obviously attach a lot of importance to seeing it through.”

So, how might the State step in?

Some observers expect it to apply an infusion of cash or to assume a chunk of the casino operator’s debt, possibly through its investment arms.

That’s what the market is guessing - on Friday, the cost of default protection on Temasek Holdings bonds rose slightly, in what Bloomberg described as “concern” the Government might guarantee completion of the Sands resort.

Another scenario is that other players could step in, though the perceived slowdown in the global gaming industry could limit the options.

Economist Vishnu Varathan did not think such an investor would come from the big players in Macau or the United States, as they appear “overstretched” with their own issues. He, as did several others, thought CapitaLand could be a suitable candidate, since it was one of the shortlisted bidders for the IR projects.

Economist Mr Colin Tan of Chesterton Suntec International said: “The IR is of strategic importance to Singapore, we can’t afford to KIV this for a very long time. If I am the authority, I’ll say, ‘OK, this guy is in trouble, let’s try to get it going. Let’s offer it to others, but on reduced terms’.”

When approached, CapitaLand did not say whether it was interested in the project, only that it was “strategically watching the distressed markets, very carefully seeking out opportunities to make the right acquisitions at the right price”.

What seems likely, for now, is that the IR’s launch will be pushed back. As to whether this would be a good or a bad thing, analysts are divided.

Some feel the global slowdown means punters and shoppers will stay away from spending for the next few years. But Mr Vishnu believes a delay in opening would handicap the economy’s pick-up.

“One more buffer that the Government is wishing for will be deflated quickly, and the cushion for the recovery of the economy might disappear,” he said, citing the lost tourist dollars for instance.