Aug 20, 2012
While gambling in Singapore is still a relatively young industry, the government’s control over unwanted behavior in the island city-state is not. The latest rules passed have made it clear that Singapore is very serious about maintaining a short leash on its two casinos operated by Las Vegas Sands (NYSE:$NVS) and Genting Singapore (AMEX:$EWS). Both of these casinos have proven to be a smash success in the island city-state so much so that the Marina Bay Sands is LVS’s best performing casino in its portfolio in just over 2 years of operations.
But, how much of that business has been generated because they did not enforce the existing rules under the current fine structure is unknown. These changes will see the maximum penalty rise from S$1 million to S$200 million. LVS’s revenues from the Marina Bay Sands could easily top $3 billion US this year. Again, Singapore’s government is serious about enforcing the S$100 fee for locals to enter the casino as well as detailed record keeping which would minimize money laundering through Singapore.
At least Singaporeans are allowed to gamble in their local casinos, albeit for a price. In both China and Vietnam they have to be bussed over a border in order to partake. And Asians love to gamble. Macau has become, by far, the biggest gambling den in the world. Put down a baccarat table anywhere in and it is like as not that people will sit down immediately and start betting.
What’s the takeaway here? How much is the S$100 entrance fee going to dissuade the Singaporean, where one in six has a net worth of more than $1 million US, from gambling. Why would a company like Las Vegas Sands jeopardize a multi-billion dollar business over it? If the fees and regulations on locals become onerous then it will just chase gambling out of town. Kuala Lumpur is an hour away and flights are less than $100; in which case Genting’s Malaysia (AMEX:EWM) division gets the direct benefit.
The bigger issue is for Singapore to continue to build its reputation as a quiet, predictable place to do business without the stigma of being an emerging market. While these rules may chase some business away and/or shave a small percentage off of LVS’s margins the gains they are consistent with a number of recent moves by Singapore to attract above-board financial business. Their forcing of over-the-counter derivatives to be cleared in public is an important cog in this plan. This adds to their plans to offer physical gold (AMEX:$GLD) and silver (AMEX:$SLV) trading without taxes, effectively monetizing them. They are also in the final stages of forcing all OTC derivative trading with a Singaporean primary interest onto publicly traded and reported clearinghouses. This is especially important given how aggressive the U.S. is being with banks like HSBC (NYSE:$HBC) over money laundering issues.
If the shadow banking system in the west can be thought of as a money laundering operation between banks for their toxic real estate assets and interest-rate swaps then it’s clear Singapore is uninterested in that kind of business in any form. These rules will ultimately benefit Singapore’s banking industry to which the Singapore Fund (NYSE:$SGF) is heavily exposed at more than 47% of its AUM. As the government and the Monetary Authority of Singapore (MAS) continue to strengthen their rules to protect investors at the expense of the banks, capital will continue to flow there preferentially, leaking away until one day New York will wake up and Wall St. will be empty.