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Sky City’s credit rating under pressure

Mon, Feb 18, 11:26am by Staff Writer

Sky City Entertainment Group’s credit rating could come under pressure if its debt ratios blow out, according to global ratings agency Standard and Poor’s.

The casino operator reported a first half net profit of $82.5 million and recently reported that its new convention centre would not open until the second half of 2020 – more than a year behind schedule.

The total project costs for the convention centre would not be material above the original budget of $703 million in a note released after the result.

That still hasn’t prevented Sky City Entertainment Group from being put on notice, with another setback potentially catastrophic.

“Under our current forecasts, we would expect the company’s debt-to-ebitda ratio to operate between 2.5x and 2.8x at the peak of its development programmed in 2020.

“Downward rating pressure could occur if we expect debt to ebitda to sustain about 3x, due to cost overruns or project delays that impair the group’s cash flow generation, the agency told the NZ Herald.

A credit downgrade would be a serious blow for the group, given its current rating is BB-, only just considered to be investment grade.

Anything below that could make it harder and more expensive for it to raise debt.

Sky City investors also received some good news though, with a potential buyback of 5 per cent of its share which could be worth approximately $135 million.

Standard and Poor’s said Sky City should have sufficient balance sheet strength to absorb the buy back cost without its rating changing – but said it was a negative from a credit perspective.

The full buy back is also dependent on the sale of its Auckland car park.

The sale of its Darwin casino will net around $200 million, with the sale of Auckland’s Federal St car park expected to bring in $28 million or $14,000 for each of its 1,960 car parks.

VIP business has boom for Sky City

News of Sky City’s credit dilemma comes after a week of positives for the Australia and New Zealand based company.

Turnover increased by 74 per cent in the six months through December 2018, thanks to a boost in VIP business.

Sky City boasted a $7.7 billion profit after gamblers found their way back to the company’s properties after a number of lean months.

The record period took away a huge chunk from the company as well, with lucky gamblers carrying on some extensive winning streaks.

The operator said that its half-year profits have fallen to $82 million, marking an 11 per cent drop. The revenue for the period remains relatively flat at $409 million.

Sky City chief executive Graeme Stephens commented on the company’s performance saying that the reported level of the company’s wins for their customers, who were relatively luckier during the period, shaved off some gains.

Mr Stephens also noted that Sky City are considering the amount of play in their casinos more in this volatile period, which showed stronger growth.

“While at a reported level Sky City handed back much of these gains to customer who were luckier than normal, we look through this volatility and focus on the amount of play, which was very strong,” Mr Stephens told the Sydney Morning Herald.

“Last year we were the lucky ones, with a win rate well above theoretical.”

The win rate was 0.98 compared with the theoretical rate of 1.35.

Mr Stephens attributed the record turnover on Sky City’s international business to third-party junket operators, repeat visits from “major” customers and bigger spending by punters.

He said the company was tipped to turn over $13 billion to $14 billion when it released its full-year results.

The return of foreign VIPs to the casinos is a major turnaround for an industry that went into meltdown and lost cashed-up Asian gamblers after the Chinese government arrested 19 serving and former staff from Crown Resorts in 2017.

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