An offer Singapore couldn’t refuse?

November 24, 2008
Singapore Democrats

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Singapore Democrats

Las Vegas Sands Chairman and Chief Executive Sheldon Adelson raised $2.1 billion last week, a remarkable feat for a company that was on the brink of bankruptcy.

How could Mr Adelson have raised the money and in a space of just a couple of days? Companies with smaller problems and less baggage would have found the task almost impossible.

It may be helpful to retrace the development of the LVS saga.

November 6, 2008. Reports that Sands’ stocks had tumbled precipitously from a high of US$123 to $7 rocked the gaming industry. The company announced that it was in dire need of fresh capital without which it expected “to miss certain borrower obligations.” In simple English, it would go bankrupt.

And a bankrupt LVS “would need to immediately suspend portions, if not all, of our ongoing global development projects and consider other alternatives.”

The strategy worked. Alarm bells went off in Singapore and Government officials were at the table with LVS faster than one could say “Bankrupt!”

The message: If Las Vegas Sands goes down, Marina Sands goes down with it. The Singapore officials got it. Given the desperate need for the project to be completed – the gaping hole of half erected structures downtown would be a daily reminder of the PAP’s failure – was Singapore made an offer it couldn’t refuse?

Two days after the news of Sands’ imminent bankruptcy broke, LVS and Singapore officials “pledge to complete the Singapore project.”

At about that time, Minister Mentor appeared and blessed the Marina project saying that the development will go on even as it is “under pressure.”

DBS’s CEO Richard Stanley, one of the Singapore banks which had loaned heavily to the construction of Marina Sands, even declared that “There’s been no default, no indication of default” by LVS.

Two days later, Mr Adelson averred that completing Marina Bay Sands remained the “number one priority for our company.” A few weeks earlier the mogul had said that he intended to raise the money “to finish work on some Macau expansion projects.”

And why not? Two-thirds of LVS’ revenue comes from its Macau operations which have even overtaken Las Vegas as the world’s biggest gambling centre. But Mr Adelson announced on 10 Nov 08 after the meeting with Singapore officials that he was halting construction in Macau.

The Senior Minister of State for Trade and Industry S Iswaran, however, insisted that no bailout money from the Government was given to Mr Adelson because “this has always been a commercial project.”

While this may be true, the question remains: How did Mr Adelson raise the $2 billion? Interbank lending is practically at a stand still, money markets is nearly non existent, corporate loans are frozen, and banks themselves are on the brink of collapse.

Mr Iswaran tried to explain: “The fundraising that Marina Bay Sands has done is an example of what they need to do in this environment in order to strengthen their balance sheet and be able to fund the relevant projects and they have to do some prioritization and that is what they have been doing and I think it is the right thing.” Does anyone know what in the world he is saying? The mumbo-jumbo only makes one more curious.

CapitaLand, a GLC owned by Temasek, was reported to have formed a joint venture with the Government to take over LVS. But this was denied by the company.

Whatever the case, one thing is unmistakable: Considering the state of the global economy and the current financial crisis such an amount is a lot of money to bet on a sick, failing enterprise.

The US is in a recession which is projected to get worse. Europe and Japan is headed in the same direction. Millions of jobs have been lost all over the world with more to come. The leisure industry is expected to take a tumble, airlines are bracing for hard times and so are hotels.

In the US revenue from gaming centres are under pressure, slipping 6 percent so far this year due in large part to the on-going crisis. Boyed Gaming Corp has stopped work on its new resort and suspended giving out dividends.

MGM Mirage has defaulted on loans and was down graded by Fitch Ratings in October. It had to renegotiate its $7 billion debt with its lenders. Another US gambling giant Ameristar Casino Inc is in dire straits too.

In Macau gambling revenue is expected to drop to about $876 million a month next year from $1 billion a month this year.

And the Singapore Government is betting that the gaming industry at Marina Bay will take off?

Maybe the PAP leaders know something that we don’t. But considering how things have collapsed at Micropolis, Suzhou, Shin Corp, Merill Lynch, UBS, Citigroup, Biopolis, and ABC Learning, it may not be a good idea to hold your breath.