2007-10-11 11:39 (New York)
By Cathy Chan and Kelvin Wong
Oct. 11 (Bloomberg) -- Permira Advisers LLP, Europe's biggest buyout firm, will buy 20 percent of Macau casino operator Galaxy Entertainment Group Ltd. for HK$6.5 billion ($838 million) in its first Asia investment.
Permira Funds will purchase 775 million Galaxy shares atHK$8.42 a share, according to a press briefing in Hong Kong today. Galaxy, one of the city's casino license-holders, will use the transaction to reduce debt and develop a Macau resort.
Foreign casino operators including Las Vegas Sands Corp. andWynn Resorts Ltd. are staking more than $20 billion on Macau afterthe city's government ended the 40-year monopoly of gambling magnate Stanley Ho. The stake sale will help Galaxy cut debt 29 percent and raise cash to complete its Cotai Mega Resort.
``There are significant benefits to be gained from combining expertise,'' the two companies said in a statement today.
Permira Funds has made 40 percent of its investments in the leisure, retail and consumer industries in the past decade, including a stake in Gala Coral Ltd., the U.K.'s biggest operator of bingo halls.
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.
Sale Details
Permira, known as Schroder Ventures Europe before 2001, will buy HK$3.8 billion worth of existing Galaxy shares held by K. Wah International Holdings, and another HK$2.7 billion of new shares issued by Galaxy. K. Wah is a Hong Kong real estate developer.
Martin Clarke and Guido Paolo Gamucci, partners of PermiraFunds, will be appointed as non-executive directors to the Galaxy board, the release said. Gamucci said the investment will be Permira's first in Asia.
``Permira's investment is a classic example of how they like to partner with families to grow their businesses, and it's in a sector they know extremely well,'' said Angus Barker, head of financial sponsors Asia Pacific at Deutsche Bank AG, which advised the private equity firm. Merrill Lynch & Co. advised Galaxy and K. Wah.
The company also invested in Italian betting company Sisal SpA, and Gala Coral, which operates 31 casinos, 171 gaming clubs and 1,600 betting offices, Barker said.
Debt Repayment
Galaxy, which operates the StarWorld casino in Macau, plans to build nine hotels and serviced apartments on Macau's Cotai Strip, where it aims to complete its Galaxy World Resort by the end of next year, Chief Financial Officer Nigel Morrison said in August.
The company on Sept. 17 said first-half loss narrowed on an almost five fold jump in sales.
Of the stake-sale proceeds, Galaxy will use HK$1.3 billion to redeem half of its fixed rate notes. To meet the public float requirement, the company will raise HK$1.3 billion in a new share sale arranged by Merrill. The company is offering 150 millionshares at between HK$8.42 to HK$8.82, according to a document sent to investors today.
The stake sale to Permira and investors will increase Galaxy's cash reserves 41 percent to HK$9.2 billion, the company said. Galaxy is run by billionaire Chairman Lui Che-woo.
The Lui family will convert the remaining half of the fixed rate notes into 157 million Galaxy shares. The note cancellation will reduce Galaxy's debt by HK$2.6 billion to HK$6.5 billion, Galaxy said.
The family will retain control of the company after the transaction, with a 52 percent stake. The sale price of Galaxy shares is a 6.4 percent discount to its last closing price of HK$9 on Oct. 5. Shares of K. Wah rose 16 percent to HK$5.26 and were suspended the same day.
--Editor: T. Kohn (rnb/maa)
To contact the reporter on this story:Cathy Chan in Hong Kong at +852-2977-6629 orkchan14@bloomberg.net
To contact the editor responsible for this story:Jason Scott at (852) 2977-6127 orjscott14@bloomberg.net
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