Inside Asian Gaming

25 G alaxy Entertainment Group may need to suspend construction of its flagship integrated resort at Cotai in 2009 because of a likely funding gap, according to Deutsche Bank. If the cause of Las Vegas Sands Corp’s Cotai work suspension was too much bullishness, then the cause of any Galaxy suspension could be excessive caution. By deciding to put back the opening of its Cotai IR until 2010 in the name of cash conservation, Galaxy is arguably robbing itself of the very money- generating machine it needs in order to maintain its liquidity and help pay back its debt. Instead, Galaxy has opted to drain cash from the business by paying off some debt first. DB says it has identified a capital shortfall of approximately HK$2.1 billion (US$270 million) in Galaxy’s plans. At least a third of that is accounted for by the cash DB estimates Galaxy will spend this year in the debt buy back. After the offer closing date on 29th December, GEG said it had received acceptances from investors for 48.6% of the bonds it offered to repurchase. The company will pay US$86.35 million (HK$670.1 million) for fixed and floating-rate notes with a combined face value of US$170.22 million. DB says that could leave Galaxy short of cash for the Cotai project. Cold water “Given prevailing market conditions, it in unlikely that the company will successfully raise the required funds, in our view,” says Deutsche Bank analyst Karen Tang in a review paper on the Macau market in 2009 published just before Christmas. In essence, DB says the ‘cure’ of improving the medium term integrity of Galaxy’s balance sheet by clearing debt could be worse than the ‘disease’ of continuing to hold the debt. This is particularly the case because of the delay to the Cotai IR. DB does, though, acknowledge there will be one time and recurring benefits from the debt buy back in the form of reduced interest payments. A number of analysts at various institutions had flagged as long ago as last November that Galaxy was likely to have a gap in its project financing. DB appears to be the first institution to state openly that Galaxy is unlikely to be able to plug the gap by going back to the money markets. Vivian Fu, Senior Investor Relations Manager at GEG, told Inside Asian Gaming the company had no comment to make on the DB report. Played down Back in November, Galaxy played down the chances of the company needing further cash to complete the Cotai project. Some analysts remain sceptical of those assertions. They’re worried that the decision to delay the opening of the Cotai IR until 2010 from Cotai Stripped Yet another Macau casino operator may be forced to halt building work in 2009 because of the global credit crunch