SkyCity to bank new capital

00:11, May 11 2009

The theme seems familiar. Listed company announces capital raising and promptly moves to pay down debt. Right?

Well, not quite in the case of SkyCity Entertainment Group.

 The casino and cinema operator yesterday revealed plans to raise about $218 million through issuing new shares. The move follows recent capital raisings from fellow listed companies Nuplex, Fletcher Building, Freightways, Kiwi Income Property Trust, Pike River Coal and Xero. Combined, they are raising over $1 billion.

But despite its $916 million of debt, SkyCity plans to put the money it raises in a bank deposit account, at least for now.

Chief executive Nigel Morrison said that was because SkyCity "owes no bankers anything."

The firm has a $500 million undrawn bank loan facility. Its actual debt consists of capital notes and money raised through private placements in the United States.


Of this Morrison said $780 million was due to mature between 2010 and 2012.

"That's a lot of money," Morrison said.

"[So] what we would like to do is look at how we restructure that debt."

This meant "opportunistically" managing SkyCity's debt structure and seeking to push out some of the debt maturity dates.

"Having strengthened our balance sheet puts us in a very good position to do that," Morrison added.

SkyCity's capital raising, coming on a day the benchmark NZX 50 index fell 1.26 percent, will also cut the firm's net debt to ebitda (earnings before interest, tax, depreciation and amortisation) ratio to 2.5x from 3.1x.

Morrison said the tightened balance sheet should help attract big institutional investors from Australia, Britain and the US.

SkyCity aims to raise about $183 million through placing 71 million shares with institutional investors plus up to another $35 million through a share purchase plan for New Zealand and Australian retail investors. The institutional placement is underwritten by Goldman Sachs JBWere at $2.52 per share.

However, suggestions last night were that the final price, being determined through a book build, was likely to be about $2.58 with demand running at more than two times the shares available. About half were understood to be going to overseas investors.

SkyCity shares fell 8 cents to $2.85 yesterday morning before trading in them was halted. It's expected to resume today.

Tower equities fund manager Paul Robertshawe said although SkyCity had no short-term need for the money, raising it positioned the firm well. That was because "extraordinarily aggressive" loan margins, facility limits and covenants were being demanded by those loaning money in the current environment.

"So if you can raise some money ahead of going into the negotiations, you're in a much stronger position to get a deal that is friendlier," Robertshawe said.

Meanwhile, Morrison said SkyCity was on track to "comfortably" achieve annual net profit in line with analysts' forecasts ranging from $99 million to $106 million.

SkyCity also indicated it was likely to drop its non-taxable bonus share dividends in favour of cash dividends with imputation credits. It also hopes to lift its BBB- Standard & Poor's credit rating, the lowest investment grade rating the credit rating agency offers, to BBB.