Adviser backs K Wah purchase of casino

PUBLISHED : Friday, 01 July, 2005, 12:00am
UPDATED : Friday, 01 July, 2005, 12:00am

Shareholders of K Wah Construction Materials should vote for the planned acquisition of Galaxy Casino, according to an independent financial adviser contracted by the company.

K Wah Construction said in April that it would buy 97.9 per cent of the casino from the family of company chairman Lui Chee-woo and minority shareholders in the business. The company would finance the deal with new shares and debt.

'The acquisition will result in an increase in net asset value per share, but will have a negative impact as to the earnings, gearing ratio and shareholding dilution,' Commerzbank wrote in a note to shareholders yesterday.

The independent financial adviser to shareholders of parent firm K Wah International, Anglo Chinese Corporate Finance, also recommended an affirmative vote for the deal yesterday.

If the casino had already been acquired by January 1 last year, the unaudited net asset value of K Wah Construction at the end of December would have been $5.15 per share - 364 per cent higher than the net asset value immediately before completion of the $1.11 per share deal, Commerzbank said.

The calculation assumes the net assets of the enlarged company to be worth $16.15 billion.

Under the scenario, the company would have posted a net loss for the year of $955 million, mainly attributable to the full-year effect of the amortisation of about $888 million of intangible assets acquired, including the right to operate a casino in Macau.

The enlarged firm's gearing ratio would have been 12.53 per cent at the end of December, including the borrowings of the Galaxy Group and the fixed-rate notes issued for the acquisition.

K Wah Construction posted net profit of $33.42 million last year, and its gearing ratio at the end of December was 6.6 per cent.