Singapore, Sands stand by their bets
By Muhammad Cohen
HONG KONG - Singapore Prime Minister Lee Hsien Loong's 2005 decision to
overturn the government's long-standing opposition to casinos and make the
island a gambling mecca that might rival Macau looked a safe bet at the time.
The global economy was thriving and gamblers in China and elsewhere in the
region were awash in cash and willing to cross borders to gamble in ways they
couldn't in their home states.
Three years on and Lee's gamble looks less secure. Las Vegas Sands (LVS), the
government's partner in the downtown Marina Bay Sands project, is staving off
talk of bankruptcy after seeing revenues dive and its share price plummet.
Tourist arrivals to
Singapore are meanwhile sliding amid the global downturn and even Macau, the
benchmark for gambling projects in Asia, is struggling to maintain momentum.
Prime Minister Lee raised the issue of "integrated resorts", in which
entertainment would feature strongly alongside casino operations, soon after
taking the helm in autumn 2004. He'd previously opposed casinos for the Lion
City, as had his father, former prime minister turned Minister Mentor Lee Kuan
Yew, but endorsed the concept to boost Singapore's share of tourism in Asia.
"We want Singapore to have the X-factor - that buzz that you get in London,
Paris or New York," Lee told parliament as he introduced the integrated resort
plan in April 2005. Previous proposals had focused on a single casino, but Lee
called for two, one in Marina Bay and one on Sentosa, a beach resort island.
Margaret Teo, the director of integrated resorts at the Singapore Tourism Board
(STB), said the aim was to double Singapore's tourism arrivals from 2005 to 17
million visitors and triple tourism receipts to the equivalent of about US$20
billion.
The proposals elicited unprecedented grassroots opposition, with thousands of
citizens signing anti-gaming petitions, partly on concerns of hard-won family
earnings being thrown away at the tables, and partly because Singaporeans
largely believed in the government's prescription of getting ahead by honest
work rather than by looking for shortcuts.
In response, the government slapped a S$100 (US$66.70) daily fee on
Singaporeans who wanted to try their luck and founded a National Council on
Problem Gambling. Underlining its goal of attracting tourists rather than
merely gamblers, the government limited casino floor space to 15,000 square
meters (161,000 square feet), or less than a third as big as the gaming floor
of Venetian Macao, a huge Las Vegas Sands project then being built in Macau.
Many experts believed the government would want a piece of the betting action,
and argued that the winning developers were sure to be partnered with Temasek,
an investment arm of the Singapore government. Others argued that even without
investing a dime, Singapore and Prime Minister Lee had already staked a huge
bet by going ahead with the integrated resort concept in the first place. After
all the bids were in, Singapore's government chose the two most attractive
proposals, and neither had a Temasek-linked partner.
With the global economic crisis buffeting LVS and other casino operators
around the globe, Singapore may now need to put more chips on the table.
Good bet in Vegas
A factor in the government selection of LVS as Marina Bay's developer was
billionaire LVS chairman Sheldon Adelson's success in repositioning Las Vegas
as a convention destination. The American company promised to build for
Singapore the world's most expensive casino resort, estimated then to cost
US$3.2 billion, and open it by the end of 2009. The Marina Bay Sands proposal
features 120,000 square meters of convention space, 2,600 hotel rooms, a
museum, shopping mall, two 4,000 seat theaters and an outdoor arena for up to
10,000 spectators.
LVS was on a roll in 2006. Its Sands Macao introduced Las Vegas casino style to
Asia in 2004 and recouped its US$265 million cost within a year of opening.
LVS's US$16 billion investment agenda for Asia included the US$2.4 billion
Venetian Macao, which opened in August 2007, as the centerpiece of an Asian
version of the Las Vegas Strip in Cotai, a 3.8 kilometer patch of landfill
connecting Macau's two outlying islands.
The unprecedented plan for 20,000 hotel rooms and five casinos targeted the
seemingly insatiable demand for gaming and other entertainment from emerging
affluent Asia, especially from mainland China on Macau's doorstep. "Up until
July 2007, banks were falling over themselves to lend to LVS - and on the Macau
story," said Robert Hecker, managing director of hotel and leisure consultant
Horwath Asia Pacific.
Last week, LVS conceded its ambitious plans had caught up with it and that it
was at risk of defaulting on portions of its US$10.35 billion debt. First, the
Las Vegas market took a hit as fuel prices surged and then suffered a follow-up
blow from the overall US economic slump. Next up, the Macau casinos were
squeezed by the global economic downturn, increased competition and a decision
by the Chinese government to tighten restrictions on mainland visitors to the
former Portuguese enclave.
On Monday, LVS reported a third-quarter loss of US$32.2 million. That was an
improvement on the US$48.5 million loss reported a year earlier, but adjusted
earnings for the period slumped to US$8.1 million from US$41.8 million 12
months earlier, even though the Venetian Macao, the world's largest casino,
operated for the entire quarter compared with just one month in 2007. The
company this year also had earnings from the adjacent Four Seasons Macao, which
opened in August. The company's share price has tumbled to US$7.50 from above
US$144 in October 2007.
Not for export
"Macau is killing them," said Lipsher Accountancy principal Laurence Lipsher,
based just across the border in China's Guangdong province. "They thought they
could export Las Vegas. They can't - the shopping and restaurants are dying and
the convention business that Adelson promised just has not happened."
LVS is responding by raising US$2.14 billion in capital and suspending
construction in Macau to conserve cash, wire agencies reported. Adelson, who
controls nearly 70% of LVS with his wife, lent the company US$475 million in
September that he plans to convert to shares and is anteing up another US$525
million in this funding round.
The company has also held discussions with Singapore government officials and
Adelson emerged from talks last week with a promise that the Marina Bay Sands
would be completed, though the government appears to have had to soften its
previous line on gambling limits. LVS said it had won approval from the
island's gaming watchdog to increase the number of gaming tables to 1,000 from
600.
STB's Margaret Teo welcomed Adelson's commitment, adding, "We remain in
dialogue with Marina Bay Sands and will continue to work closely with them to
facilitate the completion of the integrated resort project."
Whatever the merits of the initial decision to introduce the casino projects to
Singapore, Premier Lee can claim some prescience as the city looks to how it
can recover from the battering it is now taking from the global economic
downturn. The economy fell into recession in the third quarter with a 6.3%
contraction, according to preliminary government figures. Tourism numbers
featured large in the downturn, with September tourism arrivals declining 4.1%
from the previous year, even with the inaugural running of the Singapore Grand
Prix.
"Singapore is a hub for the Asian financial industry, and all of the big
financial companies are having problems," Andy Nazarechuk, dean of the UNLV
Singapore campus, said. "That means fewer trips, reductions in staff, more
caution in how they spend money. This is one of the reasons why Singapore,
after a solid year, is softening now."
The decline in visitors reflects the challenging global economic environment
and deteriorating outlook for the tourism sector, which may continue into 2009,
the STB said in a statement accompanying the latest statistics. The new casinos
and related business could then prove key to pulling the city-state out of
recession when they start to open doors to visitors next year.
"Casinos are certainly still a winning bet," Judy Siguaw, dean of the
Cornell-Nanyang Institute of Hospitality Management in Singapore, says.
"[However] casinos, as with all businesses, must be well thought out and
appropriately planned for the market. Those that are will succeed.
Over-development must be avoided."
Many experts also believe Singapore made the right choice with LVS for Marina
Bay, despite the company's present problems. "The alternatives to LVS as a
bidder were MGM and Harrah's Entertainment and both face the same financial
issues as LVS," says gaming analyst Sean Monaghan, now director of business
development at Gallant Venture.
UNLV's Nazarechuk agrees. "Singapore selected the correct operator for the
Marina Bay Sands - the main focus of this mega resort is the MICE industry
[meetings, incentives, conventions, exhibitions], a sector LVS knows well, and
that is a great asset for the Singapore market. The casino will generate
revenue, but the hotel and convention space will bring in more business for
Singapore."
There is so far no indication that the government will help LVS financially as
the company seeks to meet its claim that it will open Marina Bay Sands by the
end of next year, despite widely reported construction delays. Even so, the
government investment arm Temasek, which holds stakes in many of Singapore's
largest companies, has recently invested in struggling Western banks.
LVS "don't really need that much money to avoid bankruptcy, only a half billion
dollars or so", Devin Otto Kimble, managing director of restaurant and
microbrewery group Menu, notes. "Temasek put 10 times that much into Merrill
Lynch, and the Marina Bay Sands has much more important implications for the
country and jobs here than the failure of an investment bank in New York."
Singapore has said it will not issue a gaming license until the property is
completed. But analysts say it would not be surprising if next December the
Marina Bay Sands opens its casino plus a handful of hotel rooms and shops while
construction continues on the rest of the integrated resort. Premier Lee has
made his bet on the development's success, and his arguments for it
strengthening the island's tourism business still appear to stand.
A special correspondent for Macau Business magazine, Muhammad Cohen
told America's story to the world as a US diplomat and is author of Hong
Kong On Air (www.hongkongonair.com),
a novel set during the 1997 handover about television news, love, betrayal,
high finance and cheap lingerie.
(Copyright 2008 Asia Times Online (Holdings) Ltd. All rights reserved. Please
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