Summary

  • SKC plans to raise $230 million through institutional placement and SPP
  • The equity raising will provide pro-forma adjusted liquidity of about $586 million
  • The company has given normalised EBITDA guidance of about $185 million to $205 million for FY20

Amid this COVID-19 pandemic, many companies raised capital through various measures. Recently, SkyCity Entertainment Group Limited (NZX: SKC) successfully finished the $180 million institutional placement. It was part of the equity raising of $230 million that was declared on June 17, 2020. The placement was completely subscribed at the price of $2.50 per share, which shows a discount of 6.4 per cent to the closing price of $2.67/share as on June 16, 2020, and a discount of 10.4 per cent to the 5-day VWAP (volume weighted average price) of $2.79. The institutional placement was backed by many current institutional shareholders and also interested substantial bids from many other institutional investors. As declared on June 17, 2020, the company has also undertaken a fully underwritten $50 million SPP (Share Purchase Plan).

Equity Raising Table (Source: Company Reports)

SKC Opens its SPP Plan to Raise NZ$50 Million

The company has opened its fully underwritten $50 million SPP (Share Purchase Plan), which is a part of its $230 million equity raising announced on 17 June 2020.

  • Under the share purchase plan, eligible current SKC shareholders with a listed address in NZ or Australia can each subscribe for not more than NZ$50,000/A$47,000 worth of new shares;
  • The offer size of $50 million has been set to match up the proportion of the company’s shares owned by non-institutional investors.

Improving Balance Sheet Strength

The company is working now to improve its balance sheet to enhance its liquidity position and upcoming financial flexibility. As part of its comprehensive funding plan, SKC has entered into binding commitment letters/agreements with its existing lenders for:

  • Extending $170 million of existing bank facilities maturing over the next nine months out to June 2023 and June 2024;
  • Arranging a new $60 million bank facility from the bank syndicate, maturing in June 2022;
  • Arranging a new $100 million bridging facility from Commonwealth Bank of Australia for up to 18 months;
  • Securing covenant waivers/relief from the bank syndicate and USPP investors for the 31 December 2020 and 30 June 2021 testing periods.

Importance of Equity Raising

After the equity raising, the company will have adjusted liquidity of about $586 million accessible to meet its upcoming funding obligations. As a result, the Equity Raising is expected to provide SkyCity with sufficient liquidity and flexibility to:

  • Respond to a range of recovery cases, including a longer and more protracted recovery in New Zealand and Australia and/or further Covid-19 disruptions;
  • Fund future operating costs, working capital and capital expenditure requirements;
  • Manage current debt facilities, including early redemption of the NZ bonds in September 2020 and (if not refinanced) repayment of US$100 million of USPP notes maturing in March 2021;
  • Retain its BBB- investment grade credit rating with S&P Global Ratings;
  • Recommence dividends after the end of covenant waiver period, with the Board to review the dividend policy in FY21.

New Guidance for FY20

After the recent re-opening of NZ properties and the pending re-opening of the Adelaide Casino, the company is now happy reinstating earnings expectation for FY20. It currently expects normalised EBITDA to be in the between $185 million to $205 million and reported EBITDA to be in between $440 million to $480 million. It also expects normalised NPAT to be in between $52 million to $67 million and reported NPAT to be in between $330 million to $360 million.

The reported results during the period have been affected by many significant events, like the COVID-19 pandemic, Auckland car park concession sale and the NZICC fire, thereby limiting comparability with prior periods.

  • It expects to partly impair the investment in Adelaide Casino in the FY20 financial statements worsened by the impacts of Covid-19;
  • The impairment will be a non-cash charge which will reduce Adelaide Casino’s intangible asset value of A$283 million;
  • The assessment of a potential impairment is ongoing and remains subject to Board and auditor review.

Restructuring of Staff in New Zealand

Despite of the good performance in the early trading period, the company still thinks that its operations will be much smaller and will be focussed only domestically in short to medium period and hence its employee base is required to be downsized.

The company is under a consultation process on a proposal to decrease its New Zealand workforce by about 700 rostered (waged) employees which is meant to make sure that the company’s businesses are well equipped to operate in the new post COVID-19 environment. This restructure is likely to be finalized by the middle of June 2020.

Through this restructure program, the company expects to save about $50 million annually.

Stock Performance

The stock of SKC closed the day’s trading at $2.810 per share on 23rd June 2020, up by 2.55% from its previous closing price. The company has a market capitalisation of $1.874 billion and its 52-week high and low is $4.15 and $1.14, respectively. The stock has given a total return of 10.04% in the time period of one month and has increased 87.67% in the time period of three months.

 

 


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