Dividends dilute K Wah interest in Macau unit

Property developer K Wah International has cut its stake in its Macau gaming subsidiary, K Wah Construction Materials, to below 20 per cent, by distributing shares in the subsidiary as part of its interim dividend declared yesterday.

K Wah International will distribute the K Wah Construction shares as a special interim dividend, on top of its normal interim dividend of one cent per share, on the basis of one K Wah Construction share for every 10 K Wah International shares.

After the distribution, its stake in K Wah Construction will drop by about 240 million shares to 610 million, or from 25.92 per cent in the subsidiary to 18.78 per cent.

'We still hold about 18 per cent of K Wah Construction Materials for long-term investment, and expect its share price to rise to reflect its real value,' said K Wah vice-chairman Francis Lui.

K Wah Construction shares ended unchanged yesterday at $5.40, but that represents a 79 per cent fall from its April 19 price of $9.70, when it announced a massive casino asset injection.

The acquisition of Macau-based Galaxy Entertainment Group from its chairman, Lui Che-woo, for $18.4 billion was completed in July, making K Wah Construction the only Hong Kong-listed gaming operator.

K Wah Construction will change its name to Galaxy Entertainment Group this year to reflect its new status. Galaxy Entertainment's results will be included in those of K Wah Construction in the second half of this year.

'We are doing well over the last six months with a market share of 10 per cent in Macau, for only 5 per cent of tables,' said Galaxy Entertainment chief executive Anthony Carter.

Galaxy Entertainment currently operates only the Galaxy Casino at the Waldo Hotel, but it will open three casinos with more than 420 tables and 300 slot machines in the next nine months. The three projects will require investments of about $5.7 billion.

'We are making good progress on our $3 billion financing for the investment of three new casinos,' said Mr Lui.

The company has appointed Merrill Lynch and Morgan Stanley to arrange a bond issue and has received ratings for the proposed issue from both Moody's and Standard & Poor's. K Wah International said its interim profit for the first six months of this year was up 306 per cent over the same period last year to $631.58 million with a one-time gain arising from the deemed disposal of K Wah Construction for $5.77 million.

Revenue dropped 20 per cent to $719.82 million due to the lack of new projects launched in the first half.

The company said its core property development business generated about $55 million profit in the first half.

Mr Lui expects results to improve next year as two projects in Hong Kong and Shanghai will go on sale later this year.

K Wah Construction reported a decrease in revenue over the same period last year of 12 per cent to $540 million.

Net profit rose 27 per cent to $14 million. No interim dividend was declared.