THE BOTTOM LINE
Debt-laden Sun International feels the Chile winds blow
As it loses out on all but one of five casino licences in South America, it may not be such a bad thing after all
While Sun International has been roundly bested by competitor Enjoy in Chile, news that it lost out on all but one of five municipal licences that it had bid for may not be such a bad thing after all, given the stress on the gaming and hotel group’s balance sheet.
Sun International’s subsidiary in the region, Sun Dreams, had tendered for the two municipal licences it holds at the moment – Iquique and Puerto Varas, and for an extra three licences.In Iquique, it has secured a further 15 years to trade at a cost of $10-million – an “economic offer” which is payable yearly and which increases with Chilean inflation. That means it can go ahead with the construction of a $55-million hotel and casino complex, which is expected to be finished in two years.
But Enjoy, its rival, has scooped the other four – including the Puerto Varas property that Sun currently operates, which earned it R183-million last year on revenues of R405-million. This would have fallen “significantly” taking into account the obligatory economic offer – an extra fixed annual tax.
Losing a high margin business isn’t ideal but Sun can ill afford stretching itself in a region that has delivered less than juicy returns while it scrambles to address a debt burden that has mounted at home, and which has necessitated a recent R1.5-billion rights offer.
In its last set of results Sun said the municipal bidding process “could significantly change our position in Chile”. That sounds a bit like wishful thinking. It’s now time to make what it has, work.