Business Times - 25 Oct 2008
Storm over Sands in US hits local IR lenders
Damaging ripple effects as parent company of Marina Bay Sands integrated resort struggles to raise funds
By SIOW LI SEN AND CHEW XIANG
THE Marina Bay Sands integrated resort (IR) has been visited by the desperate travails of its parent company, which is struggling to raise funds.
And local banks, which BT understands have a combined exposure of almost $2.2 billion to the $5.44 billion project, saw their stock prices take another hammering yesterday.
Already, Las Vegas Sands' share price has fallen some 95 per cent from a year ago. On Thursday, it was US$8.21, down from the high of US$148.76 on Oct 29 last year.
The company issued a statement to say that it was working with an investment bank to raise capital and that Sheldon Adelson - the company's chairman, CEO and principal stockholder - intends to take part in it, along with his family. Mr Adelson has already had to bail out the company once before, by investing US$475 million of his own money last month.
As concerns over the project increase, local banks are getting hit. BT understands that United Overseas Bank (UOB) has committed to lend almost $890 million to the project. DBS Group Holdings' exposure is in the range of $740 million while that of OCBC Bank is around $570 million. The banks themselves declined to comment on their exposure, citing customer confidentiality.
But as disbursements of the loans are progressive, according to the construction schedule, the banks are unlikely to have disbursed the entire amounts, one banker said.
'The development of Marina Bay Sands remains on track' was all that Ron Reese, vice-president, communications, Las Vegas Sands Corp, would say.
Bankers and analysts also agreed that fears of the banks' potential losses from Marina Bay Sands are overblown. If anything does happen, the project which has been touted as iconic by the government will be rescued, perhaps by one of the government- linked companies, they say.
'Indeed, given the importance of the project to Singapore, it is unlikely to fail in the development stage . . . assistance will eventually come - at a price,' said Morgan Stanley analyst Matthew Wilson.
'Hence, initial debt and equity providers may take a haircut. Since it is such an iconic project, it is a vivid reminder of just how bad things have become from an economic and credit perspective,' said Mr Wilson.
DBS closed 94 cents or 8.6 per cent down yesterday at $10.04 while UOB fell $1.72 or 12.5 per cent to $12.08, and OCBC ended 61 cents or 11.1 per cent down at $4.88. The three local banks and Goldman Sachs were the original lead arrangers of the syndicated loan. Fears that Marina Bay Sands might default stem from the falling revenues parent company Las Vegas Sands is getting as it is earning less from its casinos in Macao and Las Vegas. Recession has caused gamblers to shy away from the tables.
Repayment of interest on the bank loans is generated from the cash flows of current casino operations.
'We're expecting the turbulent economic climate to have an increasingly negative impact on the corporate gaming operators with near-term internal liquidity remaining weak,' said Michael Paladino, senior director at Fitch Ratings. 'As consumers focus more and more on necessities spending, and we enter into recession, the gaming and lodging operating environment will continue to be under pressure, causing significant challenges for issuers that have substantial near-term refinancing risk.'
In August, Marina Bay Sands said it was on schedule to open in December 2009 and about 40 per cent of the construction had been completed. And even if the parent company decides to sell the project to another outfit, there will be bidders aplenty, one banker said.
'People will compete to be here. The biggest driver of casinos is competition, the biggest fear is competition,' he added.
The Singapore Tourism Board (STB) had projected 17 million tourist arrivals by 2015, although there is now doubt if those numbers are achievable. This year's target of 10.8 million visitors may not be met because Singapore visitor arrivals are down. According to data from the board, June was down 4.1 per cent over last year, July dipped 3.8 per cent and August posted the steepest fall at 7.7 per cent.
