Galaxy Entertainment Group seems to be upping its bets in the drive to get its suspended Cotai resort open.
Not only did the company last week commit itself to a first quarter 2011 opening for ‘Galaxy Macau’, as the resort will be known, but it also said it would be spending up to HKD9 billion (USD1.19 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—USD500 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 at least to the levels experienced in autumn 2007. The bond route might be feasible, although some investors may be made shy by the memory 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
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