S&P Global Ratings has affirmed its ‘BBB-‘ long-term issuer credit rating of SkyCity Entertainment Group Ltd., reflecting the company’s efforts to preserve its credit profile amid cyclically lower gaming revenues and elevated regulatory costs.
The rating agency expects SkyCity’s credit metrics to weaken in fiscal years 2024 and 2025, but with the handed rating likely to remain the same.
‘Economic conditions in New Zealand remain subdued, driving lower gaming and non-gaming revenues across SkyCity’s properties,’ read the rating agency dispatch. ‘We have therefore revised downward our forecast earnings for SkyCity.’
The lower expected earnings also reflect delays in the opening of the Horizon Hotel, pre-opening operational costs for Horizon Hotel and New Zealand International Convention Centre (NZICC), and one-off costs for regulatory inquiries and project-related compliance, particularly at SkyCity Adelaide.
SkyCity Entertainment recently announced the completion of construction works for its five-star Horizon Hotel in Auckland, with the opening now scheduled for August 1st, 2024.
To support its credit metrics, SkyCity has taken several creditor-friendly actions, including suspending dividends until fiscal 2025 and using the proceeds from the sale of its 10.02 percent stake in Gaming Innovation Group (GiG) to repay debt.
The group announced it was selling its entire shareholding in GiG, which it acquired in April of 2022, in a deal it expected could generate net proceeds of approximately NZ$55 million ($33.5 million) after brokerage and legal costs.
GiG is a European-based online gaming platform provider and media services operator, via which SkyCity operated its SkyCity Online Casino.
However, according to S&P, the company’s business continues to be weighed down by heightened regulatory oversight.
While the conclusion of the Australian Transaction Reports and Analysis Centre’s (AUSTRAC) case against SkyCity Adelaide has resolved some regulatory uncertainties, the company remains subject to various ongoing regulatory reviews, including an independent review of SkyCity Adelaide’s suitability to hold a gaming license.
The stable outlook reflects S&P’s view that SkyCity’s debt reduction efforts will help maintain its credit profile within the rating tolerances over the next two fiscal years.
The rating agency expects the company’s earnings to improve from fiscal 2026 as economic conditions recover in New Zealand and the successful ramp-up of NZICC, Horizon Hotel, and car park operations provide additional earnings.
