Inside Asian Gaming

INSIDE ASIAN GAMING | December 2009 36 Galaxy N ot only did Galaxy Entertainment Group last month commit itself to a first quarter 2011 opening for ‘Galaxy Macau’, as its Cotai resort will be known, but it also said it would be spending up to HK$9 billion (US$1.19 billion) to finish the job. The company stated it expected to make an announcement ‘before Christmas’ about how the work would be funded. Previously, Galaxy had been suggesting privately to some equity investors it would need about half that amount—US$500 million— to finish Cotai. The extra spend and the public announcement about a completion date before the funding is officially confirmed suggests three things and possibly four. The first is that Galaxy is much more bullish about the market than it was earlier this year. The second is that Galaxy is pretty confident it can get hold of the cash. The third is the source of that cash may include private credit. The fourth (possibly) is that Galaxy needs to make a major announcement to the market about the Cotai project if its wants to avoid the risk of analysts talking down its stock further. To an outsider at least, Galaxy’s financing options in the public markets look limited. The fresh equity route appears to be closed off because of pressure from existing stock holders anxious to build values back to at least the levels experienced in autumn 2007. The bond route might be feasible, although some investors may be made shy by thememory of Galaxy’s recent bond buy back, where investors anxious for liquidity in a squeezed credit market walked away with only 55 cents on the dollar. The Lui family, the construction materials entrepreneurs from Hong Kong who branched out into casino gaming, are known in their adopted industry for their financial caution. They opted for bonds to fund their initial round of property building in the mid Noughties, at a time when banks were lining up to throw money at Macau casino projects. It seems unlikely, therefore, that Galaxy would bet the farm on opening Galaxy Macau in Q1 2011, unless it had the finance in place behind the scenes. Watch this space. Licence to Thrill Investment cycles are so short nowadays that it’s easy to look an Asian casino gift horse in the mouth O n the one hand, Hong Kong-listed Macau gaming operator Galaxy Entertainment Group gets lambasted by more aggressive analysts for an underperforming share price. On the other hand, the same company is held up by more thoughtful analysts as an example of a stock with huge potential. Owning a licence for land-based casino operations in the world’s biggest single gambling market by volume is certainly a rare and precious thing. It reminds Inside AsianGaming of a line fromfictional mafia boss Tony Soprano in an episode of the HBO TV hit series ‘The Sopranos’. Tony says his father advised him: “Get into land, ‘cos God ain’t making any more of it”. Something similar could be said currently of Macau casino gaming concessions. Macau licences are not only rare—they are likely to stay that way in the foreseeable future. The Macau government indicated recently it has no plans to issue any more. This is despite the fact that technically, following the 2001 regulation heralding market liberalisation, 2009 was supposed to be the first year that the concession regime instituted in 2002 could come up for review. With a gaming revenue ‘pie’ growing again at 22% year-on-year in the third quarter of 2009, it would take an extraordinary foul up by one of the six currently licensed market players not to benefit from this generally rising market. Actually, Tony Soprano was wrong on the land thing. The Good Lord does make more land—albeit slowly, in the form of volcanic and seismic activity. And Cotai itself has been made by people—by dint of mud and earth dredged from the bottomof the surrounding Pearl River Delta. Although it seems unlikely at present that Macau will be ‘making’ any more gaming operation licences, it cannot be ruled out completely in a system that arguably lacks the degree of transparency, consistency and predictability built into the Singapore licensing system. Even if Macau does get busy on the licensing front, however, it is still likely to be wedded to the principle of oligopoly—i.e., a monopoly split several ways—rather than the Las Vegas principle of open market access for anyone with the money and the level of probity required by the regulator. If the Macau oligopoly is to grow, it is only likely do so by modest increments that reflect the growth of the gaming pie itself. A suite at Galaxy’s StarWorld Hotel Upping the Stakes Galaxy Entertainment Group seems to be increasing its bets in the drive to get its suspended Cotai resort open