Casino operator SkyCity Entertainment Group has been put on notice over its credit rating. Photo/Peter Meecham.
Casino operator SkyCity Entertainment Group has been put on notice over its credit rating. Photo/Peter Meecham.
Global ratings agency Standard and Poor's has warned SkyCity Entertainment Group's credit rating could come under pressure if its debt ratios blow out.
The casino operator which reported a first half net profit of $82.5 million, said its new convention centre would not open until the second half of 2020- more than a year after original expectations.
In a note released after the result S&P said SkyCity had confirmed total project costs for the convention centre would not be materially above the original budget of $703 million.
But is also put the company on notice.
"Under our current forecasts, we would expect the company's debt-to-EBITDA ratio to operate between 2.5x and 2.8x at the peak of its development program in 2020.
"Downward rating pressure could occur if we expect debt to EBITDA to sustain above 3x, due to cost overruns or project delays that impair the group's cash flow generation."
A credit down-grade could be a serious blow given SkyCity's current rating is BBB- - only just considered to be investment grade - anything below that could make it harder and more expensive for the company to raise debt.
SkyCity investors also got some surprise news with a potental buy back of 5 per cent of its shares which could be worth around $135 million.
S&P said Sky should have sufficient balance sheet strenth to absorb the buy-back cost without its rating changing but said it was a negative from a credit perspective.
It also noted that the full buyback was dependent on the sale of the Auckland car park.
S&P expectes SkyCity to net $228 million from the sale of the car park and its Darwin Casino.
Given it has already revealed it will get around $200m from the Darwin sale meaning the Federal St car park deal is likely to net around $28m or around $14,000 for each of its 1960 car parks.
