Temasek Bond Risk Rises on Concern of Casino Rescue, by Oliver Biggadike and Robert Fenner (Update2) - Bloomberg - 7th November 2008

Nov. 7 (Bloomberg) -- Default protection costs on Temasek Holdings Pte, Singapore's state-owned investment company, rose on concern the government may guarantee completion of Las Vegas Sands Corp.'s $4 billion casino project in the city-state.

Five-year credit-default swaps on Temasek, which manages about $130 billion, advanced 15 basis points to 113, JPMorgan Chase & Co. data show. The price, which climbs as perceptions of credit quality deteriorate, is equivalent to $113,000 annually to protect $10 million of bonds.

Sheldon Adelson, Las Vegas Sands' billionaire chairman, met with Singapore officials to discuss funding as a cash shortage threatens the U.S. company's projects in Singapore and Macau, according to people familiar with the talks. Banks' tighter lending standards amidst the global credit slump are making it harder for operators of group gaming tours, known as junkets, to supply loans to gamblers, cutting into casino revenue.

``People are losing money in the stock market so that would affect appetite for gambling,'' said Gabriel Chan, an analyst at Credit Suisse Group AG in Hong Kong. ``The VIPs depend on the junket operators to offer them credits, but right now not even the junket operators can get financing from either the banks or the equity markets.''

Gaming revenue in Macau, the only place in China where gambling is legal, fell to 26 billion patacas ($3.28 billion) in the third quarter from 28.9 billion patacas in the second. China's main CSI 300 Index of yuan-denominated shares has slumped 69 percent this year.

Sovereign Proxy

Temasek, which carries the top AAA credit ranking from Standard & Poor's, sold $1.75 billion of 4 1/2 percent bonds in September 2005, according to data compiled by Bloomberg. Credit- default swaps tied to Temasek's debt rose to a record 160 basis points on Oct. 28, CMA Datavision prices show.

``Temasek is Singapore Inc. There's nothing between you and the sovereign there,'' said Tim Condon, head of Asia research at ING Groep NV in Singapore. ``How do you implement the trade to short the sovereign? Temasek is it, there's nothing else.''

The Singapore Tourism Board said today it had nothing to add beyond a statement on Oct. 29, when it said it was in talks with Las Vegas Sands to ``facilitate the success'' of its Marina Bay Sands project.

Las Vegas Sands said yesterday that it probably won't meet the requirements of some loans unless it cuts spending, boosts earnings at its Las Vegas Strip casinos and raises more capital. It also said it may have to delay or suspend projects in Macau if it's not able to get funding under ``favorable'' enough terms.

Crown Default Risk

Credit-default swaps on Crown Ltd., Australia's biggest casino owner, rose after Las Vegas Sands' warning. Contracts on Crown rose as much as 85 basis points today to trade at 490, according to Citigroup Inc. prices. A basis point is 0.01 percentage point.

Crown, controlled by billionaire James Packer, led more than $3 billion of acquisitions in the U.S. last year, including a $1.75 billion agreement to buy Cannery Casino Resorts LLC, which has three venues in the Las Vegas region and a racetrack in Pittsburgh. The Sydney-based company also owns 38 percent of Melco Crown Entertainment Macau Ltd., which operates one casino in Macau and is building another.

In August, Crown took A$181 million ($121 million) of charges against its U.S. investments, including writing down stakes in Harrah's Entertainment Inc. and Station Casinos Group.

Credit-default swaps are used to protect against or speculate on default. They pay the buyer face value in exchange for the underlying securities, or the cash equivalent, if a borrower fails to adhere to its debt agreements.

(Credit: Bloomberg)

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