Inside Asian Gaming

INSIDE ASIAN GAMING | September 2010 16 Asian Gaming 50 – 2010 5 (6) Francis Lui Deputy Chairman Galaxy Entertainment Group In last year’s list we said time would be the judge of whether Francis Lui was right to delay opening Galaxy Macau from its original deadline of the third quarter of 2009. That assumes the decision by Galaxy Entertainment Group (GEG) to delay was one of choice rather than necessity, and that it could have bridged a gap in funding for the Cotai resort if it had been prepared in early 2009 to pay silly money or sign onerous covenants in return for bank loans. If the delay was an exercise in choice, then the HK$9 billion syndicated loan for completion of Galaxy Macau it signed off in April 2010 (priced at 4.5% above Hong Kong interbank offered rates) looks like reasonably shrewd business. On the down side, the delay does mean Galaxy Macau missed out on the rip roaring VIP baccarat growth of 2010. It also means the project got caught up in the politics of the Macau government’s cap on live gaming tables, announced in March. As a result, Galaxy Macau will open in the first half of 2011 with at best two-thirds of the 600 live gaming tables the resort was slated to have. Tarrying also meant the scheme became bogged down in Macau’s labour politics. In July, Macau lost patience with the way Galaxy was implementing the government’s ‘one for one’ hiring policy on construction workers Macau announced in May (i.e. one local building worker for every migrant worker signed up). The government told the company it could not bring in all the migrant building labour it had asked for to complete the site until it increased the number of local workers. This is a real problem because Macau’s unemployment rate was only 3.7% in the second quarter. Mr Lui told Macau journalists at a company event in late August that the labour squeeze had “slightly affected” the project and put it behind schedule. Even if Galaxy resolves the construction labour issue and finishes the project by the end of the first quarter of 2011 as promised, the company still faces significant challenges in hiring enough locals for day to day gaming and hotel operations. Unless it does hire plenty of locals at the opening phase of operations, it will be difficult politically for Galaxy to get a generous allocation of migrant worker permits for management and hotel staff positions. In an effort to reassure investors and to ensure GalaxyMacau doesn’t miss out on the current bullish mood among Macau visitors, Galaxy said at the end of August it would spend an extra HK$800 million to open a larger proportion of rooms at the resort’s first phase launch than it had originally planned. The number of rooms available at the Galaxy Macau launch will rise by more than 50% to 1,400 from the originally planned 900 rooms as it aims to exploit the fact that there will be no other new casino openings in Macau until the end of 2011 at the very earliest. Thenews about extraupfront investment in Galaxy Macau without major new debt implications is the sort of surprise investors like. For that reason, Galaxy has proven a useful pick for investors who want to go long in Macau and who value fiscal caution. In the six months to end of June, Galaxy made net profit of HK$608 million (US$78.14 million), up from HK$240 million a year earlier. Revenue rose 61% to HK$8.57 billion from HK$5.33 billion. The positive half-year results continued the trend of 2009, when Galaxy first reported it had swung into profit. In April this year, GEG, founded by Mr Lui’s father, Dr Lui Che Woo, announced net profit for the 12 months ended 31st December 2009 of HK$1.15 billion (US$150 million). That reversed an HK$11.39 billion net loss a year earlier. The loss in the first half of 2008 had been principally due to a HK$7 billion (US$900 million) write down in the value of its casino licence in Macau. That write down effectively meant GEG was forgiven debt owed to Dr Lui. The company had done a deal in 2005 to pay him HK$18.4 billion (US$2.37 billion) for the gaming permit. The Lui family acquired the licence for free from the Macau government in February 2002, as part of a now defunct joint-venture bidding consortium with Las Vegas Sands Corp. The fact the write down made Dr Lui’s personal worth on paper take a dip was considered by the family and the Galaxy board a price worth paying. At a stroke, the write down significantly reduced GEG’s debt burden. That, combined with the cash generated by StarWorld Hotel & Casino— the company’s property on the Macau peninsula—played an important role in improving the sentiment of those investors sticking with Galaxy for the long haul. Because of such caution and Galaxy Macau’s positioning as a genuine integrated resort focused on the higher margin mass market, Mr Lui moves up one place this year to number five on the Asian Gaming 50 list. Advertise with Inside Asian Gaming For advertising enquiries, please email: ads@asgam.com or call Domingos at +853 2832 9980