Galaxy Plans 1 Billion Yuan Bond Sale in Hong Kong

Galaxy Entertainment Group Ltd., part-owned by Permira Advisers LLP, plans to raise 1 billion yuan ($150 million) by selling bonds in Hong Kong, making it the first casino operator to access the market.

Galaxy will begin marketing the bonds to investors immediately, Robert Drake, chief financial officer, said in a phone interview yesterday. Bank of America Corp., BOC International, HSBC Holdings Plc and UBS AG were hired to manage the sale, the casino operator said in a statement.

“This is opportunistic financing,” Drake said. “There’s a strong demand for renminbi out there and this is just another example of how we use opportunities to increase our financial flexibility and strengthen our balance sheet.” The yuan is a denomination of the renminbi.

Galaxy, which is building a $1.9 billion casino resort in Macau, said it will use the proceeds from the sale for its non- gambling business and for general corporate purposes. Casino revenue in Macau, the world’s biggest gambling hub, has grown 57 percent in the first 11 months of this year to 169.5 billion patacas ($22 billion).

“It’s good for them to have a deal because they have financial needs” including a bond that is due next year, Gabriel Chan, a Hong Kong-based equity analyst at Credit Suisse Group AG, said in a phone interview yesterday. The funds may also be used as the casino operator opens its project in Macau next year, said Chan, who has a “neutral” rating on Galaxy.

Bond Investors

The casino operator’s stock fell 0.5 percent to HK$8.24 at the 4 p.m. close of trading in Hong Kong.

Galaxy, whose market value has surged 157 percent this year, owes about $165 million of zero coupon convertible bonds that are due December 2011, according to data compiled by Bloomberg. The company bought back $75 million last year of the $240 million issued, the data show.

The company will meet bond investors in Hong Kong and Singapore from Dec. 7, according to a person familiar with the matter, who asked not to be identified because the details are private.

“We view the reported renminbi bond issuance as opportunistic financing to increase the company’s balance sheet strength and liquidity in preparation for the opening of Galaxy Cotai early next year and the maturing of its HK$1.1 billion zero-coupon convertible notes due December 2011,” Goldman Sachs Group Inc. analysts said in a note to clients.

Market Opened

Galaxy has spent HK$7 billion of the HK$14.9 billion budgeted for the casino project, Simon Cheung, Justin Kwok and Janet Lu, Hong Kong-based analysts for Goldman Sachs, said in their report. They have a “neutral” rating on the stock.

China is allowing greater use of its currency in global trade to reduce reliance on the dollar, and opened the yuan bond market in Hong Kong to overseas firms in February.

Caterpillar Inc., the world’s biggest maker of construction equipment, sold 1 billion yuan of debt after McDonald’s Corp.’s 200 million yuan deal became the first sale in the currency by a foreign company in Hong Kong, according to data compiled by Bloomberg.

Galaxy, operator of the StarWorld casino in Macau, had a market share of 9.8 percent last month, according to estimates by CLSA Ltd. Billionaire Stanley Ho’s SJM Holdings Ltd. had the biggest share of the former Portuguese colony’s six casino operators, at 32.3 percent, according to the brokerage’s estimates.

Macau surpassed the Las Vegas Strip as the world’s biggest casino hub in 2006, after the city government ended Stanley Ho’s four-decade gambling monopoly and allowed the entry of foreign operators, including Las Vegas Sands Corp.

To contact the reporter on this story: Shelley Smith in Hong Kong at ssmith118@bloomberg.net

To contact the editor responsible for this story: Will McSheehy at wmcsheehy@bloomberg.net

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