International edition
June 20, 2021

The firm has us$ 769 million in cash and is not committing to a date for the opening

Macau’s Galaxy in bond buyback at steep discount

(Macau).- Galaxy Entertainment Group, which has delayed the opening of a new casino in Macau amid a harsh market for gaming firms, offered to buy back us$ 350 million worth of bonds at a steep discount to their face value. Macau out-earns the Las Vegas Strip as the world’s biggest gaming market.

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acau out-earns the Las Vegas Strip as the world’s biggest gaming market, but a flood of new capacity, the global credit crunch and visa rules that make it harder for mainland Chinese to visit have battered operators in the Chinese territory.

"We’d like to reduce our debt, and we’d like to significantly reduce our interest charges given the current economic environment," said Galaxy investor relations official Peter Caveny in a telephone interview.

Buying back the bonds at discounts of between 47 % and 62.5 % relieves pressure on Galaxy’s cash flow but leaves it short of funding to complete its planned Galaxy Cotai Mega Resort project at a time when investors shun risky projects.

Late last month, Standard & Poor’s lowered its long-term credit rating on the firm’s Galaxy Casino unit to ’B’ from ’B+’, with a negative outlook, citing the delayed opening of the Mega Resort to 2010 from the middle of next year. Caveny said the company has us$ 769 million in cash and is not committing to a date for the opening.

"We want to align the opening of Cotai to proper market conditions," he said. "Our view is that 2009 is going to be a very difficult year, and we will revisit our capital expenditure programs in Q1 and Q2 and just see how the market is."

The cooling of the Macau boom comes as debt-burdened US operators are groaning under heavy debt, slackening demand, and devastated share prices. US giant Las Vegas Sands last month halted construction on its Macau expansion and laid off most of its 11,000 construction workers there due to a financing crunch.

Galaxy is offering to pay us$ 530 per us$ 1,000 in face value for floating rate notes worth us$ 250 million due in 2010, offering us$ 375-us$ 450 per us$ 1,000 face value in a modified Dutch auction for up to us$ 100 million in fixed-rate notes due in 2012.

The 2010s traded on Monday at 42 cents on the dollar, Caveny said. Galaxy said the maximum amount payable will be about us$ 180 million. Merrill Lynch is handling the deal. "The big question is: what about capex for the Mega Resort? Is it going to be scaled back? How much? And if they scale back dramatically, is it going to affect the casino?," S&P analyst Christopher Lee said on Tuesday.

He said finding alternative funding in the current market is "uncertain," but also noted Galaxy has strong shareholders, which include UK-based private equity firm Permira. "It’s a very difficult market for any sort of fundraising, and I think the appetite is just not there for a very high-risk industry and high-risk company," Lee said. He also said that the longer Galaxy delays its Cotai opening, the harder it will be to win market share from rival operators.

S&P said last month that it believed the delayed opening of Galaxy’s new casino would weaken the firm’s ability to generate cash to repay the $250 million in notes due in December 2010. Shares of Galaxy hit a peak of us$ 1-23 in October 2007, the same month that Permira agreed to pay us$ 840 million for a 20 % stake in the company.

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