Chief exec: Galaxy’s sale would boost casino funding in Macau

Le-Min Lim and Bernard Lo

Wednesday, July 6, 2005 | 9:46 a.m.

Owner Lui Che-woo's plan to turn Galaxy Casino SA into Hong Kong's first listed casino operator may give the company access to funds as it adds slot machines and roulette tables in Macau, Galaxy's chief executive said.

Galaxy is "confident" shareholders at Hong Kong-listed K. Wah Construction Materials Ltd. will vote July 19 to approve an HK$18.4 billion ($2.37 billion) plan to buy the casino operator, Anthony Carter said in an interview broadcast Tuesday.

K. Wah Construction's purchase "will give Galaxy a public platform, more visibility and more access to the capital market," said Carter. "So, it's very important for us."

Shares in K. Wah Construction have fallen 44 percent since the acquisition plan was announced April 19, compared with the Hang Seng Index's 5 percent gain. To fund the purchase, K. Wah Construction sold 146 million shares at a discount to raise HK$1.2 billion. The company also plans to borrow and sell bonds for the takeover. The Lui family controls K. Wah Construction.

Galaxy is one of three companies to clinch a gaming license in Macau after Stanley Ho's family lost its 42-year monopoly in 2002. Galaxy is joining with Las Vegas Sands Corp. to expand in the former Portuguese colony as an influx of Chinese tourists triggered a surge in gambling revenue to $5.1 billion last year.

Gaming companies including MGM Mirage are pouring more than $12 billion into building new casinos in Macau, which may overtake the Las Vegas strip this year as the world's biggest gaming center by revenue, according to Deutsche Bank AG.

Galaxy and Las Vegas Sands have to invest a combined 8.8 billion patacas ($1.1 billion) in Macau by 2009 or risk losing their gambling license. Galaxy expects to spend 5.9 billion patacas in Macau's city center to build a premium resort hotel and casino complex called Galaxy StarWorld Hotel, and a club casino at the Rio Hotel next year; a casino on the Cotai Strip, a reclaimed piece of land, and a "mega resort complex" called Galaxy Cotai Mega Resort in 2008, according to a document sent to K. Wah shareholders last week. Galaxy's only gaming property in Macau is the Waldo Casino, which opened on July 4 last year.

Las Vegas Sands, which opened the $265 million Sands Macao casino last year, will "be responsible" for investing 4.4 billion patacas, Galaxy said in the document. Sands said it plans to build a $1.8 billion replica of its Venetian casino in Las Vegas on Macau's Cotai strip in the first half of 2007.

Galaxy, which now counts on wealthy, or VIP, gamblers for all its revenue, expects to tap the mass market and slot-machine market when it opens the new casinos starting next year, Carter said. Macau's VIP market, made up of about 4,000 mainly mainland Chinese gamblers who bet at least $1 million a visit, generated 70 percent of the city's gambling revenue last year.

"As the Macau market changes, as the middle-class develops, the mix is certainly going to change," said Carter. "The VIP market will become proportionately less important. We will be there to meet" the change.

Galaxy's share of Macau's gambling market fell to 9.3 percent in the first two months of 2005, from 14 percent in 2004, the Standard reported on May 31, citing Commerzbank, the financial adviser to independent shareholders and K. Wah Construction's directors.

Stanley Ho's Melco International Development Ltd. also plans to tap different segments of Macau's gambling market by opening a six-star hotel resort that caters to high-rollers and an underwater casino-hotel resort on the Cotai Strip for mass- market gamblers. Melco already operates a chain of slot machine outlets called the Mocha Slots for budget gamblers.

Macau's lucrative VIP market has been linked to triads and money-laundering. Some Macau casinos catering to VIPs are used by criminal gangs to launder money, the U.S. State Department said in a March 1 report to Congress.

Macau's government vowed to clean up the city's seedy image by tightening laws that curb money laundering, the International Herald Tribune reported on May 26.

Carter blamed the drop in market share on "seasonal adjustment" and the waning of Waldo Casino's "curiosity value." Galaxy expects revenue to "pick up in the second half," he said, without giving specifics.