Galaxy's Debt Rating May Be Raised on Permira Deal ( Update 1 )

2007-10-12 04:11 (New York)

By Patricia Kuo

Oct. 12 (Bloomberg) -- Galaxy Entertainment Group Ltd. may have its credit rating upgraded one level after Permira Advisers LLP, Europe's biggest buyout firm, agreed to buy a stake in the Macau casino operator, according to CFC Seymour Ltd.

``One notch credit rating upgrade is expected if Galaxy can smoothly deliver its Cotai projects and maintain its strong performance of Star World'' casino, CFC Seymour's Hong Kong-based analyst Wu Gongliang said in a research note today. Permira yesterday said it will buy 20 percent of Hong Kong-listed Galaxy for HK$6.5 billion ($838 million) in its first Asia investment.

Galaxy's $350 million of 9.875 percent bonds maturing in 2012 trade at 442 basis points more than U.S. Treasuries, 1 basis point lower from yesterday, according to HSBC Holdings Plc prices. A basis point is 0.01 percentage point.

Standard & Poor's rates Galaxy's debt B+, four levels below investment grade. Moody's Investors Service has a comparable B1 rating.

Wu expects the spreads to narrow by 20 basis points in the next six months because the Permira transaction will reduce Galaxy's debt by HK$2.6 billion, saving HK$156 million of interest payments annually. CFC Seymour maintains a ``buy''recommendation on Galaxy's debt.

The stake sale to Permira and investors will increase Galaxy's cash reserves 41 percent to HK$9.2 billion and reduce its debt to HK$6.5 billion, the company said. Galaxy is run by billionaire Chairman Lui Che-woo.


First Place

Macau, the only Chinese city where casinos are legal, surpassed Las Vegas last year as the world's biggest gaming hub. Casino revenue in the city surged 50 percent in the second quarter.

Galaxy, which operates the Star World casino in Macau, plans to build nine hotels and serviced apartments on Macau's Cotai Strip, where it aims to complete Galaxy World Resort by the end of 2008, Chief Financial Officer Nigel Morrison said in August.

The company on Sept. 17 said its first-half loss narrowed to HK$267.8 million from HK$734 million a year earlier, on an almost five fold jump in sales.

Trading in Galaxy shares remains suspended. The stock gained 24 percent this year, lagging the benchmark Hang Seng Index's 46 percent rise.

Martin Clarke and Guido Paolo Gamucci, partners of PermiraFunds, will become non-executive directors on Galaxy's board, the company said.

``Although we don't expect Permira will provide much expertise for Galaxy's large-scale casino operation, its presence in the board will enhance the company's reputation and transparency,'' Wu said in the note.

--Editor: Unwin (rnb/acp)

To contact the reporter for this story:Patricia Kuo in Hong Kong at +852-2977-6120 orpkuo2@bloomberg.net.

To contact the editor responsible for this story:Netty Ismail at +65-6212-1106 ornismail3@bloomberg.net.