SUN INTERNATIONAL FACED WITH DEBT PROBLEM...

MBABANE – The Sun International Group is highly indebted. 

Other than the transaction with Minor International Public Company Limited (MINT), Sun International had stated that they continued to explore other opportunities looking for investors that could purchase their shares in SWAZISPA Holdings. This was disclosed by Area General Manager Lance Russouw. “Sun International Limited continues to explore other opportunities in addition to the MINT transaction for the sale of their shares in the company,” Russouw disclosed. In light of these developments, Moneyweb has reported that an investment spree, which was mandated by the board and initiated by former CEO Graeme Stephens four years ago, has left the group highly indebted, regardless of how you cut the cake. Net debt sits at about E14 billion balanced by shareholders equity of E2.4 billion.

In the six months to June earnings before interest, tax, depreciation and amortisation (Ebitd) increased by 15 per cent from E1.6 billion to E1.9 billion. While a high level of gearing was not seen as a problem – because the group is historically highly cash generative – the low growth scenario that it finds itself in is cause for concern as new investments such as Time Square in Pretoria have come on stream, bumping up interest payments and sucking up operating cash flow. This has left management with a dilemma. The first step was to meet with its lenders to restructure covenant levels. The next step is to consider ways of deleveraging the group’s balance sheet. While deleveraging includes cost cutting and reducing capital expenditure; it is not certain that this will be enough. The group may have to consider a rights issue, which would be dilutive to existing shareholders. No interim dividend will be paid as management seeks to preserve cash.

Management has also shifted gears from a growth and investment phase to one of getting ‘back to basics’. “Graeme had a mandate to reinvigorate the business, which saw us dispose of our other African operations, move the Morula gambling license to Menlyn and go through a big retrenchment process in SA,” Anthony Leeming, CEO of Sun International said. “Now we are reviewing several aspects of our business model, increasing disciplines across the organisation, driving efficiencies, analysing capital allocation and managing cash flow,” he added. Also on the table are plans to downscale or exit its businesses in Panama and Colombia, which are not meeting management’s targets.
When asked to provide timelines when the transaction with MINT which had not progressed and remains subject to the fulfillment would finally come to conclusion, Russouw previously said no date could be linked to when the transaction would be finalised.

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