Friday, November 7, 2008

Can you say "Tang Dynasty Village"?

I had mused several months ago to myself that the Integrated Resorts would open just in time for a recession.

Now, it looks like they might not even open at all.

Las Vegas Sands is in talks with Singapore banks and the government. No public information however, is available. The Bloomberg story is here.

Las Vegas Sands is probably asking for any of several things: funding (either debt or equity financing), an extension or suspension of the resort opening date, a relaxation of contractual obligations, or a severe cutback in terms of project scope.

The Singapore government now has to decide whether to invest more money in order to keep this project alive and to recover 'sunk costs (and face)', or to cut back now to avoid 'throwing good money after bad'. An unenviable position that many stock market investors (especially those who trade on margin) have had to make in the last several tumultous weeks.

If Singapore ponies up our (yes, taxpayers') money, then the project (but maybe not the company) will probably survive. Just don't count on it working wonders for our economy.

If Las Vegas Sands defaults on its debt (the likeliest reason will be due to breached covenants and an inability to refinance debt), we can expect:

1.An immediate plunge in the STI

2.Many local companies, especially those in the construction industry, to get crushed under the burden of bad debts traced directly or indirectly to Las Vegas Sands.

3.Lots of work for local bankruptcy lawyers.

4.A sharp fall in GDP and a concomitant climb in unemployment figures.

5.A half-baked Integrated Resort a la Tang Dynasty Village.

6.Huge holes in the balance sheets of the local banks that were part of the lending syndicate to Las Vegas Sands.

7.A general loss of confidence in the economy.

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