SINGAPORE
Marina Bay IR could cost a whopping US$3.1b: Merrill
Lack of global opportunities for casinos expected to fuel high bids
The Marina Bay integrated resort (IR) with casino could be one of the
most expensive projects of its kind ever developed - with a price tag of
US$3.1 billion. And the Sentosa IR's price won't be very much cheaper - at
about US$1.9 billion.
 
That's according to the latest research note on the development of the
Singapore casino scene by US banking giant Merrill Lynch.
The figures estimated by Merrill Lynch include land prices. Pegging it to
the recent tender of the Business and Financial Centre (BFC) site at Marina
Bay - which, at S$1.8 billion, works out to $381 per square foot of
potential gross floor area - Merrill Lynch calculates that the Marina site
would cost more than $2 billion.
But it reckons the government won't push IR land prices to such a level
because the aim is to maximise long-term tourism, not to make short-term
gains. Moreover, the Marina and Sentosa sites are likely to have 60-year
leases, versus the BFC's 99-lease.
Still, Merrill Lynch believes the land price at Marina will be US$900
million, while Sentosa's will be US$600 million.
And the 'size, scope and importance of the project is causing the
timetable to drift a little', Merrill Lynch analyst Sean Monaghan says in
the research note. He thinks the Request for Proposal (RFP) - in which
conditions and rules of the tender process will be released to bidders -
could be issued in August or September.
But Merrill Lynch believes that this will only be for the Marina site,
and that the RFP for Sentosa will be launched separately next year. When
contacted, the Singapore Tourism Board (STB) said it will reveal details
when it launches the RFP this quarter. The RFP will come with a string of
conditions, Merrill Lynch says. One could be a two-envelope format, with the
first envelope outlining such things as the bidder's architecture plans, its
proposal to drive tourism and its ability to address social issues such as
problem gambling. From these, Merrill Lynch predicts that the government
would shortlist three to five candidates.
In the second envelope, bidders would state the amount they are prepared
to pay for the land, with the highest bidder among the shortlisted
candidates winning the concession.
Merrill Lynch believes the key strategic point won't be the total bid
value but how bidders apportion the total bid. So a bid could technically be
lower, but if it gives a higher consideration to the land price, it could
beat a higher total bid.
The government could also ask for a bidding deposit of $50 million and
require a performance bond from the successful bidder. Merrill Lynch says
this could be set at 5 per cent of the total investment. 'The performance
bond would be required to ensure that the successful bidder completes the
development to the precise specifications agreed to with the government,' Mr
Monaghan says.
'The scarcity of new casino opportunities globally, coupled with the
economic growth in East Asia, has focused the attention of all the major
casino groups on Singapore,' he adds. 'In addition to the issue of scarcity,
past bidding history and a company's 'global' status may also be amplifying
bidding in Singapore.'
Harrah's Entertainment, which has teamed up with Keppel Land for both IR
sites, could 'be driven to bid aggressively in Singapore due to the fact
that it has yet to secure a property in Asia', according to Merrill Lynch.
Other companies it considers 'aggressive' bidders are MGM Mirage, which
has partnered CapitaLand for the Marina Bay site, and Genting International.
As the size of the investment rises and the competition intensifies,
Merrill Lynch says bidders could drop out or others may emerge in the months
to come.
It also predicts that each IR will have Ebitda - earnings before
interest, tax, depreciation and amortisation - margins in the mid-20 per
cent range, with casino operations generating 80 per cent of total IR
revenue. - by Alexandra Ho BUSINESS
TIMES 27 July 2005
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