Correspondence
Back to Correspondence[copy typed from PDF of letter received from SKYCITY Entertainment Group Limited]
SKYCITY Entertainment Group Limited
Federal House 86 Federal Street
PO Box 6443 Wellesley Street
Auckland New Zealand
8 July 2009
New Zealand Shareholders’ Association
PO Box 6310
Auckland City
Fax 09 309 5260
Attention : Mr Bruce Sheppard
Dear Bruce
Re: SKYCITY Entertainment Group Limited
We reply to your letter of 8 June 2009 addressed to Rod McGeoch, Chairman of SKYCITY. We reply on behalf of the company.
Included in your letter is a request that SKYCITY comments on your analysis and provides details of the covenants associated with its funding facilities. On this point we note that covenant compliance is included within SKYCITY’s half yearly and annual independent audit reviews and sign-offs.
Your letter also raises the issue of companies that might potentially be in debt difficulties. We advise that SKYCITY is not in this category.
Your letter also states that SKYCITY’s debt is high with most maturing within a relatively short tome [sic] frame. We disagree that SKYCITY’s debt can/should be regarded as “high” given the strong cash-based nature of its business, the resilience of its earnings base to date, and the two tiered structure of our debt facilities being a combination of senior and subordinated debt. There is significant flexibility in and around the repayment requirement of the subordinated debt.
Whilst we recognize that there is some bunching of maturity in the 2012 USPP, we confirm that are [we] are well placed to address this well in advance of that time.
We further note that SKYCITY has a $500m committed debt facility with ANZ/BNZ/CBA which is currently undrawn.
SKYCITY maintains a comprehensive disclosure of its operational performance and its balance sheet position (including its funding facilities) in conjunction with its half year and full year results reporting in February and August each year.
SKYCITY confirms it will continue to provide comprehensive information to the ASX and NZX and the investor community generally at half yearly intervals and more often if /as appropriate.
The company also advised that the institutional placement (of $185m) would reduce Net Debt:EBITDA from 3.1x to 2.5x and the company’s gearing ratio (relative to market capitalisation) from 39.1% to 31.5%, based on the balance sheet as reported as at 31/12/08. The subsequent SPP and Top-Up which raised a further $43m of equity further enhances those ratios.
In your letter of 8 June, you acknowledge the company’s recent (April 2009) equity raising of $228m. At the time of the equity placement SKYCITY stated that the additional capital funding would enhance the company’s financial flexibility. SKYCITY further advised that the proceeds of the placement would be used to reduce net debt, thereby improving SKYCITY’s credit metrics.
We note that SKYCITY has a $500m committed debt facility with ANZ/BNZ/CBA which is currently undrawn.
We also note that a significant component of SKYCITY’s value is not included in Tangible Assets, being the casino licences in New Zealand, so that a comparison of debt to tangible assets or book value of equity is not, in our case, a useful measure of gearing.
SKYCITY has confirmed the strength of its balance sheet and provides clarity on its funding arrangements as an integral part of its half year and full year reporting to investors and on the company website. The company has previously advised that it is comfortably inside its funding covenants.
We believe that our existing disclosure on company performance, funding arrangements, balance sheet matters, and other relevant factors (eg capex spend) can be regarded as full and appropriate. We are proud of our reporting standard and the level of information we make available to the public at large and to the investment community in particular.
You have requested that additional detail be provided but SKYCITY advises that it does not currently intend to increase the level of disclosure already provided – on the grounds that the level of disclosure currently undertaken is already full and appropriate and that more extensive disclosure could in fact be commercially sensitive in certain circumstances.
Yours sincerely
Alistair Ryan
Chief Financial Officer