Permira bets HK$6.5b on 20pc stake in Galaxy

PUBLISHED : Friday, 12 October, 2007, 12:00am
UPDATED : Friday, 12 October, 2007, 12:00am

British private equity giant Permira Advisers will pay HK$6.5 billion cash for a 20 per cent stake in Macau casino developer Galaxy Entertainment Group.

The non-leveraged deal, Permira's first investment in Asia and Macau's largest private equity acquisition, was one of several transactions totalling HK$7.8 billion that Galaxy unveiled yesterday in an effort to shore up its balance sheet and strategically position itself against intensifying competition in the world's largest gaming market.

Galaxy operates five casinos in the enclave. Last month it unveiled plans for 12 more gaming resorts on Cotai Strip.

The opening in August of Las Vegas Sands Corp's US$2.4 billion Venetian Macao is the first in a long line of developments by Sands, Galaxy, Melco PBL Entertainment, eSun Holdings and Wynn Resorts that are expected to add more than 25,000 hotel rooms on Cotai in the next three to four years.

'Obviously, the biggest risk about investing in Galaxy is the future of Cotai,' Permira partner Martin Clarke said. 'Although it's still early days, it is great that the Venetian has opened and seems to be successful and we've got no doubt about the longer-term potential of Cotai.'

The deal with Galaxy, held by the family of property and construction tycoon Lui Che-woo, calls for Mr Lui's KWah International Holdings to sell Permira 452.5 million of its about 615 million existing shares in Galaxy at HK$8.42 each.

Galaxy in turn will issue 323.38 million new shares to Permira and place a further 150 million new shares with institutional investors. Both sales are priced at HK$8.42 per share.

To reduce debt and boost its balance sheet, loss-making Galaxy will use HK$1.3 billion of the proceeds from the share sales to repay half of its outstanding fixed-rate notes and convert the rest into 157 million new shares at HK$8.42 per share.

In total, Galaxy will issue about 630 million new shares or almost 20 per cent of its existing share capital. The deals lift Galaxy's net cash 41 per cent to HK$9.2 billion and cut total debt 29 per cent to HK$6.5 billion.

'We have been criticised in the past for our inefficient capital structure,' chief financial officer Nigel Morrison said yesterday. 'We are coming now from a position of strength where many others are not.'

The deal allows Permira to take an active role in decision-making at Galaxy and to appoint two non-executive directors to its board. The Lui family will retain majority control but sees its stake reduced to 52 per cent from 68 per cent.

Permira has raised more than US$30 billion in funds since 1985 and invests in about 30 portfolio companies including European gaming major Gala Coral Group which it expects will be able to share management experience with Galaxy.

'We have always been saying we are looking out for partners at the holding company level and operating level,' Galaxy deputy chairman Francis Lui Yiu-tung said. 'There are still many opportunities for us to partner with somebody else.'