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 $703m.
But it 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 programme 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 downgrade 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 it to raise debt.

But SkyCity investors got some good news with a potential buyback of 5 per cent of its shares which could be worth around $135m.

S&P said SkyCity should have sufficient balance sheet strength to absorb the buyback 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 its Auckland carpark.

S&P expects SkyCity to net $228m from the sale of the carpark and its Darwin Casino.

Given it has already revealed it will get around $200m from the Darwin sale, it means the Federal St carpark deal is likely to net around $28m or around $14,000 for each of its 1960 car parks.

Market hopes

New Zealand could see a rebound in its capital markets this year but the number of publicly-listed companies may still fall, a law firm is predicting.


Chapman Tripp's annual stock take of the equity markets says things are looking better for 2019 and 2020 after a tough couple of years.

Last year there were no new initial public offerings, and in 2017 there was just one — Oceania Healthcare.

At the same time, six companies delisted from the main board — PGC, Tegel, Trilogy, Xero, Fliway, and Opus, and CBL Corporation also went into administration.

Three small companies migrated from the smaller boards on to the main board, and one fund listed, reducing the total decline to two.

But Rachel Dunne, a partner at Chapman Tripp, said she expected to see signs of a slow turnaround in 2019, pointing to the potential for the Napier Port to IPO.

"We are not saying we are going to see 2013/14 levels of activity. It will be more of a really slow turnaround," she said.

Dunne said the Napier port IPO had more chance of success because it had been subject to public consultation and that could kick off more activity in the market as was seen after the partial floats of the power companies.

Other potential IPOs which could come to market in 2019/20 include Vodafone, Partners Life, CannaSouth, My Food Bag, Stuff, and Salus Aviation.

She also pointed to the change in listing rules from July which will see the closure of the NZAX and NXT markets and consolidation on to the main board, making it easier for funds to list as potential drivers.

But the market is also likely to shrink this year with a number of takeovers already in the works. Orion Health, Methven and Trade Me are all under offer and likely to delist.

However, Dunne believes it could be the last year of shrinking.

"We expect the reduction to continue, with a number of other control transactions such as takeovers or schemes of arrangement in the pipeline, but this trend will start to finally reverse from 2020."

V-shaped recovery?

It's usually an economic recession people are talking about when they describe a v-shaped recovery. But there is plenty of commentary around the US markets seeing a v-shaped recovery after having a strong bounce-back since the start of the year after such a poor end to 2018.

The NZX50 is seeing its own v-shape with the index not far off its September 21 high of 9375 points. The NZ index has had a strong run since the start of the year and was trading around 9333 points mid-afternoon yesterday.

Analysts are pointing to high demand for equity versus low issuance as the driver.