| |
Today,
7 Jun 04
Will you spend $1,000 to help Sentosa succeed?
by Lee Han Shih peccavi013@yahoo.com
Each visitor must shell out this sum per year to make tourism project
a worthwhile investment
IF Sentosa is turned into a giant theme park, would you spend $1,000
there each year? . If your answer is "No", it could be bad news for
the Sentosa Leisure Group (SLG), which is spending a huge sum of money
to transform the island into a must-see destination for locals and
tourists.
According to the SLG's Darrell Metzger, the group is raising as much
as $8 billion in investment for the project — $6 billion for Sentosa
and up to $2 billion for the southern islands.
The 57-year-old Metzger is the chief executive of the SLG, a statutory
board formerly known as Sentosa Development Corporation. He played
a key role in setting up Tokyo Disneyland and was head-hunted two
years ago to remake Sentosa.
So, it is not surprising Mr Metzger has decided to turn Sentosa into
a giant tropical theme park. Already, he has got Temasek Polytechnic
to develop a $15-million Tourism Academy and has committed another
$15 million for a zoo exhibit-cum-restaurant project. Mr Metzger is
also building a $140-million light rail network and is spending another
$30 million to spruce up old attractions and add a 110m Sky Tower.
He has even persuaded the Pontiac group to erect a six-star hotel
and the NTUC Club to build a second beach club. As if all that is
not enough, the Sentosa CEO is talking to a major operator to invest
up to $500 million in an entertainment park.
To Mr Metzger, the SLG has two tasks — first, develop the island's
infrastructure and then persuade investors to develop new attractions.
The two are linked: The higher the investment target, the more money
the SLG has to put in to ensure its infrastructure can handle the
traffic necessary to make the investments work.
This is a sound strategy. But it does depend on Mr Metzger being able
to get all the investors he hopes to secure. If the new investments
fall far short of his target, the SLG could end up spending billions
of dollars on infrastructure development for nothing.
The spending proportion is about 75-25, Mr Metzger told The Business
Times. For every $3 the SLG hopes to bring into Sentosa, it will have
to put in $1 itself. To hit the $8-billion target, the SLG must fork
out $2 billion.
Let us look at the numbers. Investors today can get a 5-per-cent return
from low-risk bonds. They will demand a pre-tax profit of at least
10 per cent from risky tourism projects. This means the projects must
yield an operating profit of 20 per cent per annum, as half of the
money will be used for servicing bank loans, replacing equipment and
depreciating land leases.
To support $8 billion in new investments, the projects need to yield
$1.6 billion in earnings before interest, tax, depreciation and amortisation
each year. Assuming a 20-per-cent profit margin, this requires Sentosa
to rake in $8 billion of sales a year to make it worthwhile for investors.
Last year, 4.2 million people visited Sentosa, 60 per cent of whom
were locals. Mr Metzger thinks the number will go up to 8 million
in 2012, with foreigners making up a higher proportion. Eight million
visitors need to part with $8 billion to give a decent return for
the SLG and its investors. Therefore, each visitor must spend about
$1,000 every year on Sentosa.
Tourists do, on average, spend more than $1,000 each in Singapore.
In fact, the 6.1 million who came here last year spent $7 billion
or $1,400 a head. But a huge chunk of that money went to hotels and
shopping. The SLG is hoping to get its visitors — at least half of
them being locals, who do not stay in hotels and do their shopping
on Singapore island — to spend $1,000 each on its attractions.
But just look at Tokyo Disneyland, a place Mr Metzger knows intimately.
Average spending on the theme park is about 10,000 yen ($155). The
SLG is aiming for its visitors to spend about six-and-a-half times
as much on Sentosa. Is this realistic? The answer is obvious. It follows
that if the revenues cannot be generated, then the investments will
not work.
The SLG is a statutory board, so the $2 billion or so it intends to
put into Sentosa is public money. It has a duty to make sure money
is not spent to pursue unrealistic targets. The SLG needs to take
a long and hard look at its Sentosa plan and set a target that is
more achievable, with less public money.
The writer is a freelance journalist. |
|
