New proposed deal for Sun International to dispose of Latin American interest

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Opting for taking the cash in a proposed deal makes sense right now, says an analyst. (Supplied)
Opting for taking the cash in a proposed deal makes sense right now, says an analyst. (Supplied)

A new deal is on the table in the quest by South African resort hotel and casino company Sun International to try to dispose of its interest in Chile, Latin America.

Sun International announced the proposed deal in a JSE-notice on Friday. In terms thereof, Chilean investment holding company Nueva Inversione Pacifico has agreed to acquire Sun Latam's remaining equity interest in Chilean casino operator Sun Dreams for US$160 million, on certain conditions.

Pacifico and Sun Latam are the current shareholders of Sun Dreams, while Sun Latam is 99.2% owned by Sun International.  

Conditions to finalise the proposed deal include approval by Sun International's shareholders and the Chilean casino regular - both before the end of December this year.

R1.2 billion rights offer

Due to the negative impact of the coronavirus lockdown on its operations, Sun International announced in June this year a R1.2 billion rights offer in an attempt to try to weather the storm. Its results announced in March showed a debt burden of R8.8 billion. Its premier resort, Sun City, recorded a 6% decline in income.

Fin24 reported earlier in August that almost all the shares (94.52%) in the rights offer had been snapped up.

According to Sun International, the proceeds from the new proposed settlement payment by Pacifico to Sun Latam will be used to settle Sun International's offshore debt in Latin America of $38.3 million. The balance will be repatriated back to SA to further reduce the group's local debt, strengthening its balance sheet and eliminate interest charges from Latin America.

At the end of April 2019 shareholders were advised that Pacifico and Sun Latam had entered into a share purchase agreement, whereby Pacifico had agreed to purchase 14.94% of Sun Latam's shareholding in Sun Dreams for the sum of US$85.8 million. This initial transaction would have resulted in each party holding a 50% equity interest in Sun Dreams.

Dispute

At the end of June this year, however, shareholders were advised that Sun Latam and Pacifico had become embroiled in a dispute regarding the initial transaction and that Sun Latam had initiated arbitration proceedings against Pacifico in Chile.
 
Following the impact of the Covid-19 pandemic on the group and taking into consideration the challenges facing Latin America and South Africa, plus the length of time, uncertainty and costs associated with arbitration proceedings in a foreign country, Sun International says the parties have now rather opted for the new proposed agreement.
     
"Although Sun Dreams has an attractive portfolio of assets and a number of opportunities for growth, it is, at the same time, facing several challenges, including the need to renew its casino licenses [in Chile], political and social reforms in Chile," the group states.

Analyst Simon Brown of Just one Lap thinks that, ideally, Sun International would have liked to retain their Latin American operations. Due to the various challenges it faces, however, amplified by the impact of the Covid-19 pandemic putting pressure on its South African operations, opting for taking the cash in the proposed deal makes sense right now.

The book net asset value of the shareholding held by Sun International in Sun Dreams as at 31 December 2019 (being the date of the most recent published financial results), was US$244 million. For the year ended 31 December 2019, Sun Dreams generated revenue of US$381 million, EBITDA of US$89 million and profit after tax of US$17 million.

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