Galaxy Entertainment Group Ltd., the Macau casino operator founded by billionaire Lui Che Woo, plans to spend as much as HK$60 billion ($7.7 billion) to expand operations on the increasingly popular Cotai strip.
The company will spend the money on the third and fourth phases of Galaxy Macau, its flagship casino resort in Cotai that opened in May 2011, Chief Financial Officer Robert Drake said in an interview yesterday. Galaxy has said it will start construction of the two phases as early as the end of this year and begin operations gradually from 2016 through 2018.
Galaxy is competing with companies such as Sands China Ltd. to expand in Cotai, the equivalent of Las Vegas strip in Asia. It bought the Grand Waldo casino hotel in the area this month to widen its footprint there as an increase in new attractions, hotel supply as well as an improved rail connection are drawing more mainland Chinese visitors to the world’s biggest gambling hub.
Drake expects 2013 casino revenue for the city to increase “mid-teens,” while VIP revenue will expand by “high single digit,” he said.
Momentum for the city’s VIP market will continue for the rest of the year and casino revenue is expected to exceed $40 billion this year, Sands China Chief Financial Officer Ben Toh said at a gambling conference in Macau today.
SJM Holdings Ltd.’ s Chief Financial Officer Bob McBain expects gambling revenue to double from current levels in 6-7 years, he said separately at the conference today.
Casino revenue in Macau, the only place in China where casino gambling is legal, rose 14 percent to a record of 304 billion patacas in 2012. VIPs account for about two-thirds of gambling revenue in the former Portuguese colony.
High-rollers from China’s mainland curbed spending amid a slowdown in the world’s second-largest economy last year. In the first quarter, the city’s VIP baccarat revenue rose 9.8 percent to 57.82 billion patacas ($7.2 billion) from a year earlier.
Galaxy shares fell 1 percent to HK$39.15 in Hong Kong trading today. The benchmark Hang Seng index lost 0.5 percent.
Galaxy said May 15 it is seeing signs of improved demand from high-stake gamblers. Adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, for the first quarter ended March rose 29 percent to HK$2.8 billion, it said.
The casino operator will use its cash flow and consider other financing options such as bond sale or debt to fund the expansion, Drake said.
Galaxy had HK$14.4 billion of cash, cash equivalents and short-term investments as of Dec. 31, according to data compiled by Bloomberg.
The casino operator said on May 5 that it will pay HK$3.25 billion for Grand Waldo which includes a spa, casino and hotel. The purchase will be completed in the third quarter of this year, according to Drake.
The company is interested in pursuing a non-gambling project on the Hengqin Island, near Macau and China’s Zhuhai city, Drake said, without disclosing further details.