Sun International: Rights Issue Needed To Cut The Debt Noose
20 November 2017 | Jeremy Woods: Out of the Woods


Sun International, a successful hotel group started by the hotel magnate Sol Kerzner many years ago, will have to consider embarking on a rights issue in order to minimise its debt before the noose tightens.

In recent years, Sun International has actively concluded a number of significant investments and acquisitions, which was part of its growth strategy. There’s been the merger with Dreams SA in Chile, the acquisition of a 70% equity interest in Sun Slots (formerly GPI Slots), significant upgrades to Sun City, and the development of Time Square in Menlyn. These deals contributed towards the 19% increase in revenue.

Even though these investments were strategic and in line with the company’s growth and investment strategy, they were fully financed by debt which currently has an impact on the balance sheet, drastically increasing the company’s level of gearing.

Sun International has experienced a heavy decline in market cap over the last year, but with the new acquisitions and investments on board, things could turn.


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With a debt ratio of close to 1, which is considerably higher than the competition, and mounting interest charges, management has to revisit the company’s capital structure and find a way to reduce the current R15.1 billion debt (interim results June 2017).

One option being considered by the board is to conduct a rights issue early next year.

“While the group’s operations continue to generate strong cash flows and Sun International has renegotiated its debt covenant levels for June 2017 and December 2017, the Company’s board of directors has nevertheless deemed it prudent to consider raising additional capital in the market in order to de-risk the balance sheet. It is envisaged that any proceeds from such a capital raise exercise would be used to repay debt, thereby creating head room in relation to the relevant debt covenants.

A stronger balance sheet and capital structure will also afford management greater operational freedom and the ability to focus its time and efforts on the stated ’back to basics’ strategy as well as reducing Sun International’s interest charge, as rates are based on the Company’s prevailing debt metrics,” says a SENS announcement.

According to Sun’s management: "the South African economy will remain challenging for the foreseeable future with continued downward pressure on personal disposable income and in particular discretionary spending on gaming. In response to disappointing revenue growth and the uncertain economic outlook, management has taken further steps to reduce the cost of doing business and is in the process of implementing a "back to basics" drive across the group with a specific focus on improving operating efficiencies."


Jeremy Woods

Jeremy Woods trained for three years as a journalist on the Herts Advertiser, St Albans, in the U.K. Once qualified, he left England to work as a crime reporter on the Vancouver Sun in Canada. After three years, he worked for the Los Angeles Times as a trainee financial journalist, spending most of his time reading company accounts and finding publishable stories in them. He moved to South Africa and for the last five years in journalism worked for the Sunday Times, Business Times, as Investment Editor. He has also published a financial thriller called "Special Payments", which was a best-seller on publication, and optioned three times for a film.

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