Macau's Galaxy in bond buyback at steep discount
By Tony Munroe
HONG KONG (Reuters) - Galaxy Entertainment Group (0027.HK), which has delayed the opening of a new casino in Macau amid a harsh market for gaming firms, on Tuesday offered to buy back $350 million worth of bonds at a steep discount to their face value.
Macau out-earns the Las Vegas Strip as the world's biggest gaming market, but a flood of new capacity, the global credit crunch and visa rules that make it harder for mainland Chinese to visit have battered operators in the Chinese territory.
"We'd like to reduce our debt, and we'd like to significantly reduce our interest charges given the current economic environment," said Galaxy investor relations official Peter Caveny in a telephone interview.
Buying back the bonds at discounts of between 47 percent and 62.5 percent relieves pressure on Galaxy's cash flow but leaves it short of funding to complete its planned Galaxy Cotai Mega Resort project at a time when investors shun risky projects.
Late last month, Standard & Poor's lowered its long-term credit rating on the firm's Galaxy Casino unit to 'B' from 'B+', with a negative outlook, citing the delayed opening of the Mega Resort to 2010 from the middle of next year.
Caveny said the company has HK$6 billion in cash ($769 million) and is not committing to a date for the opening.
"We want to align the opening of Cotai to proper market conditions," he said. "Our view is that 2009 is going to be a very difficult year, and we will revisit our capital expenditure programmes in Q1 and Q2 and just see how the market is."
The cooling of the Macau boom comes as debt-burdened U.S. operators are groaning under heavy debt, slackening demand, and devastated share prices.
U.S. giant Las Vegas Sands (LVS.N) last month halted construction on its Macau expansion and laid off most of its 11,000 construction workers there due to a financing crunch.
DISCOUNTED OFFER
Galaxy is offering to pay $530 per $1,000 in face value for floating rate notes worth $250 million due in 2010 36318MAB8=, offering $375-$450 per $1,000 face value in a modified Dutch auction for up to $100 million in fixed-rate notes due in 2012 VG023832534=.
The 2010s traded on Monday at 42 cents on the dollar, Caveny said.
Galaxy said the maximum amount payable will be about $180 million. Merrill Lynch MER.N is handling the deal.
"The big question is: what about capex for the Mega Resort? Is it going to be scaled back? How much? And if they scale back dramatically, is it going to affect the casino?," S&P analyst Christopher Lee said on Tuesday.
He said finding alternative funding in the current market is "uncertain," but also noted Galaxy has strong shareholders, which include UK-based private equity firm Permira [PERM.UL].
"It's a very difficult market for any sort of fundraising, and I think the appetite is just not there for a very high-risk industry and high-risk company," Lee said.
He also said that the longer Galaxy delays its Cotai opening, the harder it will be to win market share from rival operators.
S&P said last month that it believed the delayed opening of Galaxy's new casino would weaken the firm's ability to generate cash to repay the $250 million in notes due in December 2010.
Shares of Galaxy hit a peak of HK$9.56 in October 2007, the same month that Permira agreed to pay $840 million for a 20 percent stake in the company.
Shares of Galaxy opened the year at HK$7.50 and steadily dropped. They fell 1.6 percent on Tuesday morning to HK$0.63 apiece, giving the firm a market value of $313 million, before reversing course to trade more than 3 percent higher.
(Reporting by Tony Munroe; Editing by Ken Wills)
