Permira's Macau gamble

The global buyout group, whose name means “surprisingly different,” has made its first investment in China by taking a non-control stake in casino operator Galaxy, to fund an ambitious program of property development and expansion.

Permira, one of the world's largest private equity firms, is buying an approximate 20 percent equity stake in Galaxy, a casino and hotel operator in Macau, for a total amount of HK$6.5 billion ($840 million).

It is Permira's first investment in China with an unusual non-control stake. At the deal's completion, founding shareholder Dr Che-woo Lui and members of the Lui family will retain an approximate 52 percent controlling interest in Galaxy. The injection of funds will also deleverage the business, strengthening Galaxy's capital structure with a reduction in debt of HK$2.6 billion, and a net annual interest benefit of approximately HK$250 million. Galaxy's total outstanding debt will fall from $9.2 billion to $6.5 billion, down 29 percent.

The transaction highlights a shift in investment emphasis among the biggest firms as the mega deals have become impossible to finance, while the banks clear the backlog of leveraged loans agreed on before the summer. Charles Sherwood, a partner at Permira, said buyout firms would need to be more creative now that the “magnifying glass” of leverage had been removed.

The deal provides the foundations for the future development of the 2,500 room, suite and villa Cotai Mega Resort, which when complete, will feature the world's second largest casino. Galaxy also has a further 10 million square feet of approved floor area for future expansion. Galaxy operates a number of casinos in Macau including its flagship StarWorld.

Macau is the world's largest gaming market. In 2006, the special administrative region of the People's Republic attracted 22 million visitors, more than half from mainland China, and it is expected that visitors will increase to over 27 million in 2007.

Permira has expertise in the international gaming sector through its investments in Gala Coral, Europe's largest gaming company, and in Sisal, the second largest lotto operator in Italy.

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