Will Las Vegas Sands hold Singapore Government to ransom over the Marina Bay IR project?

Written by Ng E-Jay
12 November 2008

Will Temasek be forced to make a highly risky and potentially large investment into the Marina Bay IR project in order to prevent the project from collapsing in the event that the parent company, Las Vegas Sands Corporation (LVS:NYSE), goes under, or is unable to proceed with the project on schedule due to the severe financial problems it is facing?

Las Vegas Sands said Tuesday that it has secured an additional U$2.14 billion in capital funding commitments which includes funding from its chief executive Sheldon Adelson, and is suspending all constructions in Macau to conserve cash following a loss in the third quarter. In so doing, it has removed the risk of tripping loan covenants which could have set off a series of defaults resulting in bankruptcy. But given the harsh economic realities, it remains unclear whether additional funding could be required in the future. My opinion is that it is a strong possibility.

Las Vegas Sands said that it is suspending work on developments on the Cotai Strip in Macau, China, its Vegas condominiums, and parts of its Bethlehem, Pennsylvania project, to focus on finishing construction in Singapore. It also extended the deadline for finishing parts of the Marina Sands project in Singapore into 2010. The casino, two hotel towers, as well as meeting and convention areas, were originally scheduled to open at the end of 2009.

Design changes will allow the Singapore casino to house as many as 1,000 gambling tables, up from about the 600 earlier planned, Las Vegas Sands said. This increase in the number of gambling tables in in contradiction to our Government’s earlier promise that the size of the gambling operations will be kept under strict control to placate the more conservative members of our society.

Will Las Vegas Sands arm-twist the Singapore Government into pumping billions more of our taxpayers’ money into the Marina Bay IR project to ensure its smooth completion? The failure of this project would make the Government lose a lot of face (something it seems to treasure very dearly), and will be politically devastating to the ruling party given the amount of hype the mainstream press has given to the two IR projects, one in Marina Bay and one in Sentosa.

Property developer CapitaLand said on Monday it has not held any talks with Las Vegas Sands over its Singapore casino-resort project, but “will explore opportunities to invest in distressed assets”. This statement came after brokerage firm CIMB said in a report on Monday that CapitaLand and the Singapore Government may take over the casino-resort if Las Vegas Sands fails to avert loan defaults.

Our local banks, OCBC, UOB and DBS, have significant exposure as lead arrangers for the project. They had led in extending a S$5.4b credit facility to Marina Bay Sands. The total exposure of the three banks to the project is about S$1.3b. So this might be another incentive for Temasek to step in to rescue to the project should anything go awry with the parent company Las Vegas Sands, as our 3 local banks, which are heavily owned by Temasek, would suffer dearly in the event that the project is delayed, or worse, falls through.

Already, our state media is busy trying to put a positive spin on various IR projects by giving a full report on how Resorts World at Sentosa has launched its first major recruitment drive, and has moved to see if it can hire workers who have been retrenched, including those from DBS Bank. The follows an earlier report of DBS Bank retrenching about 900 staff.

Marina Bay Sands kicked off its hiring blitz late last month, and so far has received more than 10,000 responses.

Clearly, with Singaporeans most concerned about the availability of jobs in the current economic slowdown, the media must be hoping that such well-timed articles on the brisk hiring at the two IRs will divert attention away from the harsh reality that casinos are not exactly the best businesses to be in during a recessionary period.

Post-Script: Temasek’s stock-picking ability has been thrown into serious doubt again, when it was recently revealed that it lost very heavily in its investment in an Australian childcare chain called ABC Learning, which was literally brought to its knees by its founder Eddy Groves through over-investment and over-leveraging. Temasek has lost nearly all of its 12 per cent stake in the company originally worth about A$400 million. (See ST, “Aussie families and investors hit by fall of childcare chain”, 11 Nov 08.)

Will Temask be compelled yet again to make another high risk investment in Marina Bay Sands, to prevent the Government from losing face?