Galaxy Entertainment Group Ltd. plans to invest as much as HK$50 billion ($6.5 billion) to expand a Macau resort as the casino operator seeks to draw more Chinese tourists in the world’s largest gambling hub.
Galaxy expects to begin construction on Phase 3 of the resort on Macau’s Cotai strip at the end of 2013 or the beginning of 2014, Yoko Ku, a company spokeswoman, said in a phone interview today. The construction will cover about 10 million square feet and will involve spending of HK$40 billion to HK$50 billion, she said.
The company controlled by billionaire Lui Che-woo joins Sands China Ltd. and Melco Crown Entertainment Ltd. in expanding on the Cotai area in Macau, the only place in China where casino gambling is legal. Casino operators including Wynn Macau Ltd., MGM China Holdings Ltd. and SJM Holdings Ltd. also received approvals this year to build resorts on Cotai, a piece of reclaimed land that is Asia’s equivalent of the Las Vegas Strip.
Galaxy rose 1 percent to close at HK$29.75 in Hong Kong trading, the highest level since Nov. 29. The city’s benchmark Hang Seng Index gained 0.6 percent.
“Galaxy will continue to do well in the short run, but there may be an oversupply in the market after 2017,” said Jeremy Tan, a Hong Kong-based analyst at Kim Eng Securities HK Ltd. “Every casino operator in Macau is expanding in Cotai.”
Given that all projects are large-scale resorts with more than 2,000 hotel rooms each, it’s doubtful whether there will be enough demand to absorb the supply after 2017, when most of the new resorts will be completed, said the analyst, who has a buy rating on the stock and a price estimate of HK$33.50.
Galaxy plans to fund its expansion through internal resources and debt facilities if needed, said Ku, the spokeswoman. The company has more than HK$10 billion of cash on hand as well as strong cash flow from operations and doesn’t require additional financing so far, she said.
The operator plans to draw more middle-class families by dedicating about 95 percent of the area to be developed under the third phase to retail and entertainment. The expanded area will include a concert arena with about 10,000 seats, a theater with 1,800 to 2,000 seats, and one shopping mall.
The company is looking for hotel partners for Phase 3, which is expected to be completed in 2016 at the earliest and will add 4,200 rooms, Ku said.