SkyCity launches capital raising for casino upgrades

The move by SkyCity, foreshadowed by Fairfax Media in April, comes at a delicate time for the company after the resignation of Its long-serving chief executive Nigel Morrison with chief operating officer John Mortensen working as interim boss.

The gaming player plans to raise $263 million via a 1-for-10 rights offer at $NZ4.40 a share through Credit Suisse/First NZ Capital.

The proceeds will be used to support the funding of projects at its Adelaide and Auckland casinos along with repaying bank debt.

"The offer is expected to provide sufficient funding capacity and headroom for SkyCity to fund its major growth projects, maintain its BBB- credit rating and allow it to continue to invest prudently in the business," said the company in a statement. "SkyCity remains committed to its existing dividend policy for the foreseeable future, which should provide an attractive cash yield for shareholders."

While SkyCity posted an impressive 28 per cent boost to its first-half net profit in February its new chief executive will be under pressure to effectively manage its balance sheet.

To retain its BBB- credit rating, SkyCity must keep its debt to EBITDA ratio at less than three times.

UBS estimates it will be testing those levels by the 2018 financial year, although Goldman Sachs has a slightly more conservative view, and forecasts gearing will peak at 2.7 times debt to EBITDA.

The raising was sparked by SkyCity's decision to retain its Hobson Street hotel in Auckland after concluding a sales process which failed to meet its expectations.

"Final proposals received were below internal valuation," the company said in a statement. "[The] potential funding benefit of sale was not as meaningful as originally anticipated [but it is a] high-quality asset that is expected to deliver material incremental revenue and earnings for SkyCity Auckland after opening."

The gambling company said the $300 million expansion of its Adelaide casino would be completed by late 2019 or early 2020 and Walker Corporation was making "good progress" on its Festival Plaza development which includes 750 car park spaces to be allocated to the state's only major gaming facility.

The casino is unusual in not being able to offer punters a dedicated facility for parking.

Its Adelaide casino posted a 58 per cent increase in earnings before interest, tax, depreciation and amortisation to $21.4 million in the first half of 2016.

The bulk of that growth was from the company managing to lure high-roller gamblers from rival casinos in Sydney and Melbourne operated by The Star Entertainment Group and Crown Resorts.

VIP turnover in its Adelaide casino jumped 146 per cent to $1.9 billion in the six-month period with SkyCity's overall high-roller turnover up 51 per cent to $NZ7.2 billion boosted by VIP customers fleeing gambling in Macau for offerings in Australia and New Zealand.