Rendering of SkyCity Auckland Casino, Hotel and Convention Centre
New Zealand’s SkyCity Entertainment Group has big plans on the horizon, looking to spend $300 million on the expansion of its Adelaide Casino, including a new parking area – something the property has been in dire need of since SkyCity purchased the property in 2000. In order to get the job done, and save face with S&P Global Ratings, they’ll need to raise most of that money to fund the project and pay down debt.
The New Zealand casino firm launched a fund raising campaign hoping to generate $263 million in capital towards the investment. This latest move comes after a failed attempt to sell off the company’s new hotel casino resort in Auckland, which is still under construction.
The SkyCity Hotel on Hobson Street is part of a massive complex that will include the Auckland Casino, Convention Centre, over 20 restaurants, a spa retreat and other exclusive amenities. The original plan was to sell off the hotel to fund the expansion at the Adelaide Casino, but the company determined that the “final proposals received were below internal valuation.”
So instead, the group is looking to raise enough capital to complete the Auckland site, pay down some of their extensive debt, and help fund the expansion in Adelaide. All this, while struggling to maintain a BBB- credit rating from S&P Global Ratings (formerly Standard & Poor’s Rating Service).
Asian VIPs Credited for SkyCity Success
Adelaide Casino is currently the only major casino facility in all of New Zealand, and it’s beginning to attract a rather large crowd of high-rolling Asian gamblers. That’s one market SkyCity Entertainment would like to harvest more from.
Since the Chinese government began cracking down on corruption within its own industry in Macau, Asian VIPs have been seeking out safer gambling destinations in which to splurge. Casinos in New Zealand and Australia have become their prime target.
For the first half of 2016, SkyCity has already reported a 58% rise in earnings before interest, tax, depreciation and amortisation (EBITDA) at its Adelaide property, jumping to $21.4 million. The company has attributed most of that growth to patronage from international big spenders.
Adelaide Casino experienced a VIP turnover of 146% ($1.9 billion) in the last six months, with overall high-roller revenue boosted 51% to ($7.2 billion).
In order to continue harvesting VIPs from rival casinos in Macau and Australia, SkyCity is hoping to complete upgrades to the property by late 2019, or early 2020. There’s already a project underway by Walker Corporation to complete a 750-space parking facility as part of its new Festival Plaza, which will give the New Zealand casino its first-ever dedicated parking lot.
Investment Crucial to New Zealand Casino
But if the group fails to raise the necessary capital needed for the project, it could spell disaster for SkyCity. Thus the company has proposed a 1-for-10 rights offer, at $NZ4.40 per share, encouraging investors to contribute a total of $263 million.
“The offer is expected to provide sufficient funding capacity and headroom for SkyCity to fund its major growth projects, maintain its BBB- credit rating and allow it to continue to invest prudently in the business,” the firm said in a statement. “SkyCity remains committed to its existing dividend policy for the foreseeable future, which should provide an attractive cash yield for shareholders.”