Daily Lesson from Life 12 November 2008

"No bailout for IRs
Concerns that company not able to carry on with first integrated project at Marina Bay. -Wed, Nov 12, 2008 The Straits Times

THE Government has 'no intention' of bailing out the integrated resorts in Singapore should they fail, Senior Minister of State S. Iswaran said on Wednesday.

He was responding to media queries on whether the Government may step in to rescue the Marina Bay IR project, whose parent company, Las Vegas Sands, is facing cashflow problems due to the global economic downturn.

Las Vegas Sands auditor PriceWaterhouseCoopers said in a regulatory filing last week that the casino operator would not be able to meet lenders' requirements unless it cuts spending on developments, boosts earnings and raises more capital."

A bold and decisive announcement to kill off any desperate businessmen looking for US-style government bailout for a potentially failing commercial undertaking from the Singapore government!

This is the difference between Singapore government and some other governments. Of course the decision is made easier with the investors being a foreign company. Unlike some other countries where they have their so-called 'National Champions' that they want to nurture into world class companies and support them all the way, even if the cost may far-outweighed the benefit!

Lessons for me are:

1. high capital investment comes with high risk. The risk gets higher when a majority of it is funded by leverage or borrowing. Lenders beware as well as buyers beware!;

2. no one or very few souls would have anticipated the sub-prime crisis spinning out of control and turned into a monstrous credit crisis that dragged down many normally fund-able commercial projects around the world. This Marina IR project is one of the unfortunate victims if you like. Having said that, it is also true to say that the sentiment at the planning stage could not have been more bullish! With many casinos coming on stream in Macau alone, and others around the region;

3. while we are always ask for Plan B, just in case. We do not normally go deeper or being more critical in providing for the worst scenario! Perhaps in our scenario planning session in the future, we should make sure we have a 'bust the company' scenario!

It is a controversial project from the word 'go'. It split the nation in half during the debates on the merits and demerits of bringing the casinos to Singapore. Now, it is almost upon us but maybe with a little delay. For the economy of Singapore, I hope things get going pretty quickly and we can at least confirm if those thousands of job and the benefits that will accrue to Singapore from this project is real or not!