Analysts: Resolution of independent review paves way for SkyCity to offload Adelaide casino precinct, although sale unlikely
by Ben Blaschke
SkyCity Adelaide
9
SHARES
228
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The news last week that New Zealand’s SkyCity Entertainment Group has reached a non-binding heads of agreement with South Australia’s gaming regulator to resolve all outstanding matters arising from an independent review into SkyCity Adelaide could pave the way for SkyCity to offload the Adelaide casino, according to analysts at investment firm Forsyth Barr.
The agreement should also be seen as broadly positive for SkyCity as the agreed AU$21 million (US$14.7 million) fine is significantly lower than the maximum AU$75 million (US$52.6 million) fine that was possible and the AU$50 million (US$35.0 million) fine Forsyth Barr had assumed.
In a note, analysts Paul Laxton Koraua and Andy Bowley said the AU$21 million fine equates to around 3 cents on a per-share basis but added any share price impact is “likely to be more meaningful given the agreement removes a significant amount of uncertainty and clears the way for a potential exit by SkyCity from the Adelaide precinct.”
In comments to IAG, Laxton Koraua pointed out that SkyCity has previously cited the pending review outcomes as an impediment to selling Adelaide but suggested a sale was becoming less likely given the company has around NZ$300 million (US$172 million) of property assets in the market which represent more than enough to cover any debt concerns.
In a Monday morning note, the analysts added that, between SkyCity Auckland’s Grand Hotel and nearby 99 Albert Street offices – both of which it is looking to sell – “SkyCity would crystallize more than enough value to pay down debt to sustainable levels and resume dividends while also improving free cash flow.”
SkyCity has not specifically outlined any intent to sell its Adelaide asset, with the company having previously refuted rumors of such a transaction. In 2024, SkyCity also reiterated the property’s position as a “strategically important asset” after recognizing an AU$86.2 million (US$57.5 million) impairment due to the assumptions around the introduction of mandatory carded play at the SkyCity Adelaide casino plus additional legal and compliance costs associated with its uplift programs.
Aside from the AU$21 million fine, to be paid in three equal installments over two years, the non-binding heads of agreement signed last week calls on the appointment of a dedicated SkyCity Adelaide CEO who reports to the SkyCity Adelaide Board and with all general managers reporting to that SkyCity Adelaide CEO.
The Board is to comprise a majority of non-executive directors who, including the chair, must be independent of SkyCity Entertainment Group.
Other measures include a commitment by SkyCity Adelaide to phase out the use of cash for transactions over AU$4,999 (US$3,503) and a prohibition on junkets at the Adelaide casino. SkyCity noted that junket activity ceased at the property in April 2021.
SkyCity previously paid a AU$67 million (US$44 million) penalty for AML failures under a separate agreement it reached with AML regulator AUSTRAC.