May 20, 2009 / 4:09 AM / 10 years ago

Galaxy sees early signs of recovery in Macau

HONG KONG (Reuters) - Macau casino operator Galaxy Entertainment Group (0027.HK) said it could take on new debt to fund its HK$10 billion ($1.29 billion) mega-casino complex amid early signs of recovery for the struggling market.

“We had a very successful bond buy-back program,” Chief Financial Officer Bob Drake told Reuters in an interview on Tuesday. “At some point in the future it’s not unreasonable to say we’ll do a debt financing of some kind.”

“We have plenty of options to choose from. When you deleverage your balance sheet, you still have a lot of cash and great assets that creates a lot of funding alternatives for yourself,” he added.

Gaming revenues in Macau have fallen in the last two months after years of explosive growth, amid the economic slump and a drop in visitors from China due to tightened government travel restrictions to the former Portuguese enclave.

But a possible move to stabilize commission rates paid to the organizers of high-stakes “junket” tours and an increasing number of Chinese tourists coming to its casinos is boosting the outlook, Drake said.

“We’re cautiously optimistic,” he said. “I think there’s a lot of positive indicators, but I’m not sure whether we have a trend yet.”

Macau’s six gaming concession-holders — which include gambling magnate Stanley Ho’s SJM Holdings (0880.HK) and U.S. firm Las Vegas Sands (LVS.N) — are discussing imposing a limit on junket commissions at 1.25 percent, Drake said. The commission cap is expected to lift earnings for casino operators.

Shares of Galaxy, which have nearly quadrupled in the past six months, have led a broad-based rally in Macau's gaming stocks. Its stock is the best performer on the HS Hong Kong Composite Index .HSHCI in that period.

DELAYED PROJECT

Galaxy, controlled by Hong Kong’s Lui family, delayed the opening of its casino resort because of the global financial crisis and travel visa restrictions introduced by the Chinese government.

The company would keep close tabs on the performance of Macau’s newest mega-casino, the City of Dreams — built by Melco-Crown Entertainment Ltd MPEL.O — after its June 1 opening, before it decides when it will open its resort, Drake said.

“It’s all going to be demand-driven,” said Drake, who joined the firm in April last year from Harrah’s Entertainment Inc HAMLEH.UL.

“It’s not a ‘build and they will come’ philosophy. We have to see demand before we can pull the trigger.”

The company has invested HK$3.7 billion for the project and could invest another HK$2-2.5 billion more this year, he said.

But Credit Suisse analyst Gabriel Chan said the company’s balance sheet looks stretched, with the project and refinancing of its fixed rate notes due by 2010.

“Although they have HK$4.7 billion of cash, they have another HK$5 billion of debt as well,” Chan said. “I don’t think they have enough cash to complete the Cotai project and settle the debt repayment at the same time.”

($1=7.752 Hong Kong Dollar)

Editing by Doug Young and Lincoln Feast

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