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Casino operator SkyCity announced yesterday it had successfully completed its $263million capital raising in lieu of selling its Hobson St hotel asset in Auckland.
In a 1:10, fully underwritten offer, about 8 million new shares were sold for $4.40, which was a discount of 12.8%. The new shares will begin trading on June 10.
During the next five years, SkyCity is funding development of the New Zealand International Convention Centre in Auckland, costing $495million, and also expansion of its Adelaide Casino, for $A300million ($NZ320.1million).
SkyCity shares were unchanged at $4.62, up 12% on a year ago, following the announcement yesterday.
Its original plan was to sell its Hobson St hotel, adjacent to the convention centre, to fund both projects, but proposals to buy Hobson St were below in-house valuations and SkyCity retained the asset instead.
The convention centre and Adelaide would instead be debt-funded, Craigs Investment Partners broker Peter McIntyre said.
"Essentially, the capital raising lets SkyCity keep Hobson St hotel ... Hobson's a key asset for SkyCity,'' he said.
Forsyth Barr broker Suzanne Kinnaird said institutional investors had taken up $161million of the total $263 million a fortnight ago, and yesterday there was a book build under way from the rights of shareholders who had not taken up the offer.
Following an earlier SkyCity investor day on the rights offer, Mrs Kinnaird said "it's all about execution from here''.
"Delivering to time and budget, while minimising disruption to its existing business will be of key interest to investors,'' she said.
Mr McIntyre said the equity raising provided an adequate balance sheet capacity.
The cost to further develop Hobson St is estimated at a further $140 million, he said.
While having recommended shareholders take up the rights offer, as opposed to having their existing stake diluted, Mr McIntyre was "cautious'' on SkyCity's long-term outlook.
Longer term there was negative risk, given the two projects were expected to deliver returns "only marginally'' above the cost of capital, which appeared to be "small reward for the risk involved''.
However, in Craigs' upgrading the stock recommendation to "neutral'', Mr McIntyre noted reasonable value in the current share price, and a reduction in balance sheet risk from both the capital raising and having got a fixed price construction contract for the convention centre build.
He said the cost of the two developments would be phased in over the next few years, with SkyCity's debt levels peaking in financial year 2019.
However, including the $263million capital raising, Mr McIntyre said SkyCity's debt levels would be comfortably below the threshold required for it to maintain its BBB- credit rating, while it would have been closer to the threshold had it sold Hobson St.
The convention centre project remained on target for completion in the first quarter of 2019, with total costs still in line with earlier guidance, he said.
"Management have reiterated their comfort in retaining the Hobson hotel and its potential to be a strong earnings contributor in the future,'' he said.
Mr McIntyre said the Adelaide casino redevelopment had experienced further delays, with the targeted completion now pushed out to 2019-2020.
"In total, the growth projects require a further $850 million of capital expenditure from full-year 2017 onwards, with debt peaking in full-year 2019,'' he said.