HONG KONG (Reuters) - Private equity firm Permira has raised about $875 million from the sale of its remaining stake in casino operator Galaxy Entertainment Group Ltd (0027.HK), capping a highly profitable investment that nearly tripled the firm’s money over the past five years.
Permira sold its final 5.94 percent stake in Galaxy on Thursday, a day after the shares reached a record high and just two weeks after the gaming company reported better-than-expected third-quarter results.
The deal paid off in spades after the private equity firm endured a roller-coaster ride in Macau’s high-flying but unpredictable casino sector. Permira’s investment had lost more than 90 percent of its value in late 2008 when the stock fell to HK$0.50, sparking criticism for having taken a minority stake in Galaxy without effective control of the company.
It also follows months of speculation over a possible selldown and may lend support to Galaxy’s shares, JPMorgan analyst Kenneth Fong said.
“People were concerned about the placement, but now with the overhang gone, it should boost sentiment,” Fong said.
The stock traded down 3.9 percent in early afternoon trade in Hong Kong, retreating from an all time-high of HK$28.05 the day before. Hong Kong's benchmark Hang Seng index .HSI fell 1.4 percent.
The 249.6 million shares were sold at HK$27.17 each, putting the total sale at HK$6.78 billion ($875 million), a source with direct knowledge of the deal told Reuters. The shares had been marketed in a range of HK$27.17 to HK$27.46 each, Thomson Reuters publication IFR reported.
That takes Permira’s gains to nearly three times its original investment in Galaxy in 2007, profiting from the boom in Macau’s gaming industry in recent years and benefiting from exchange rate gains as it invested from a euro-denominated fund.
Including two previous sales in August of this year and September 2011, European-based Permira has raised a combined HK$17.5 billion from selling off its 20 percent stake in the casino company, which it originally acquired for HK$6.53 billion.
Founded in 1985, Permira advises funds with a total committed capital of approximately 20 billion euros ($25.5 billion).
It has invested around $2.5 billion of capital, or nearly a quarter of its global fund of 10 billion euros, in four companies in Asia in the last five years: Galaxy Entertainment, Japanese agrochemical company Arysta LifeScience, sushi restaurant chain Akindo Sushiro and Asia Broadcast Satellite.
Other companies in its portfolio with a presence in fast-growing Asia include German fashion house Hugo Boss (BOSSn.DE).
Galaxy, a $15 billion company by market capitalisation, has expanded into one of Macau’s three largest casino operators over the past year.
Originally a construction and property company, it had no experience in developing casino resorts when in 2002 it was awarded the largest of several plots of land the Macau government allotted under a plan to open up the former Portuguese colony’s casino market, now the world’s largest.
But in the latter half of 2008, barely a year after Permira had bought into the company, slumping financial markets and strict visa controls by the Chinese government sent casino stocks tumbling.
Last year, the company opened its biggest casino project, Galaxy Macau, on Macau’s fast-growing Cotai strip, and it is building a second phase set to open in 2015 that will put it ahead of competitors including U.S. giant MGM Resorts’ (MGM.N) Chinese arm, MGM China (2282.HK), and local rival SJM Holdings (0880.HK), which is controlled by the family of Macau kingpin Stanley Ho.
Macau’s casino sector has been a huge beneficiary of robust Chinese growth in recent years, with revenue flows more than five times those of Las Vegas, but a slowdown this year in the world’s second-largest economy has hit gambling revenues.
Demand from Chinese high-stakes gamblers has dropped, pressured additionally by heightened political scrutiny as China prepares for a generational leadership transition.
The Macau casino sector’s revenue of $3.5 billion in October was the strongest monthly figure so far this year, with steady growth in business from China’s expanding middle class offsetting declines among the big spenders.
Analysts and investors in recent months have scaled back their expectations for Macau’s gambling revenue growth to about 10 percent, however, with a return to the heated 40 to 50 percent surges of the past year considered unlikely.
Galaxy said in a securities filing early on Thursday that the sales were done through Permira’s ENB Lux 1 S.àr.l and ENB Lux 2 S.àr.l vehicles in a private placement, without disclosing details of the pricing.
UBS UBSN.VX acted as sole bookrunner on the Galaxy stake sale.
Additional reporting by Stephen Aldred, and Fiona Lau of IFR; Editing by Richard Pullin and Edmund Klamann