Thursday, September 01, 2005

Casino Owners Prepare Bonds To Finance Growth in Macau


Macau's high rollers may soon have an alternative to the blackjack table to park their cash, with a trio of bond issues from the former Portuguese colony expected to materialize in coming months.

Leading the way is Galaxy Casino SA, bought recently by Hong Kong-listed K.Wah Construction Materials Ltd.

Like many others, K. Wah, a unit of K.Wah International Holdings Ltd., wants to grab a bigger chunk of the growth that has seen Macau turn from a sleepy backwater into a gambling haven with casino revenue that threatens to outpace that of Las Vegas.

To that end, K.Wah has hired Merrill Lynch and Morgan Stanley to sell about US$300 million of bonds to help finance additions to Galaxy's lone casino in the Waldo Hotel on the Macau peninsula.

"We are dedicated to making Galaxy a leading operator of gaming leisure and entertainment facilities in Macau," Lui Che Woo, who controls K.Wah Construction, said when its board approved the Galaxy purchase last month.

Galaxy aims to invest HK$5.7 billion (US$733.5 million) by 2008 in three new casinos due to open in the next 12 months as well as in a casino-and-entertainment resort on the Cotai strip -- an area of casinos and luxury hotels under construction on a reclaimed area between the Macanese islands of Taipa and Coloane.

The bonds are expected to emerge in the next month and will be "a challenge to market," said a person familiar with the deal. The lead managers will have to explain, among other issues, the value of a construction company shifting into the gambling sector, its activities in China and its ratings -- expected to come in the single-B range, or solidly speculative grade.

Galaxy's offering is likely to be followed later this year by another from Venetian Macau Ltd., a unit of Las Vegas Sands Corp., and by Melco International Development Ltd., controlled by gambling magnate Stanley Ho.

Mr. Ho had a monopoly on Macau's gambling sector for some four decades until the government in 2002 handed concessions to Mr. Ho's Sociedade de Jogos de Macau, Wynn Resorts (Macau) and Galaxy Casino.

Venetian Macau, which shares a license with Galaxy, is estimated to be in the market for US$150 million to US$300 million, with Goldman Sachs in charge of the bond sale. The company plans to build a US$1.8 billion replica of its Las Vegas Venetian resort on the Cotai strip in the first half of 2007.

Melco also is finalizing plans to raise funds to finance developments.

"Sometime in the first quarter of next year, we will finalize some of the debt portion," Melco group managing director Lawrence Ho said last week.

Speculation has centered on a US$300 million bond with Deutsche Bank the most likely candidate to be lead manager.

The casino company, along with Australia's Publishing & Broadcasting Ltd., is building the six-star Crown Macau at a cost of around HK$2 billion.

The two companies also are planning the HK$8 billion City of Dreams casino, featuring the world's first underwater casino, set to be open by 2008.

And that isn't the end of the fund raising.

In the race to build the biggest and brightest that the area has to offer, MGM Grand Macau, owned by Nevada casino operator MGM Mirage and Pansy Ho, is seeking to raise US$615 million in medium-term amortizing loans while Wynn Resorts (Macau) has just closed a US$744 million five-year loan via Banc of America Securities Asia, Deutsche Bank and Société Générale of France.

The coming bonds are certain to grab attention, not least because of the rarity of paper both from the Asian gambling sector and out of Macau.

Genting Bhd. of Malaysia, the chairman of which, Lim Kok Thay, holds shares in K. Wah, is the only gambling-related play in Asia outside of Japan and Australia. Bankers say there are no Macau bonds outstanding after Venetian Macau paid off early US$120 million in bonds it sold in 2003 to finance the construction of its Macau Sands casino.

Then there is the massive growth in the Macau gambling sector, which should prove to be a draw. Last year, Macau had gambling revenue of about US$5 billion, up 40% from 2003 and only a shade behind Las Vegas's US$5.2 billion.

"We think that the Macau gaming market will continue to see about a 20% compound annual-growth rate for the next three years," said Karen Tang, analyst at Deutsche Bank in Hong Kong. "The reason is because we think Macau is turning from a hard-core gambling market into a holiday destination resort."

Behind the growth is a stream of visitors from China -- arrivals more than doubled between 2002 and 2004 -- drawn to the only part of China where gambling is legal.

"We think that as the disposable income of the mainland Chinese people increases, they will be looking for more of an entertainment-style resort," said Ms. Tang.


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