The indebtedness of a company is one factor that influences 'investment risk'. 'Investment risk' influences the return a new investor into Sky City today might expect.
Sky City earned $146.847m in normalised profit over FY2016. When you stack this up against the corporate loans that the company must eventually repay:
Current Loans |
$38.028m |
Non-Current Loans |
$389.032m |
Total Loans |
$427.060m |
then the 'minimum debt repayment period' (MDRP) is a mere:
$427.060m / $146.847m = 2.9 years
That is expectedly (given the cash issue a month before balance date) low. Yet there was a reason behind the cash issue. SKC has committed to spending $NZ700m at the Auckland site, the majority of that going towards the new Convention Centre. Furthermore, Sky City is committed to spending $A300m ($NZ333m assuming $A0.9 =$NZ1-) more on the Adelaide development. These are huge committed costs, largely not reflected on the books as at 30-06-2016.
We are told that during the year $8.674m of interest has been capitalised at an interest rate of 6.03%. This implies capital expenditure of:
$8.674m / 0.0603 = $143.8m
I believe that this money relates to capital already spent developing the Auckland site. So this leaves:
$700m - $144m = some $556m still to spend
If we add the Auckland and Adelaide expected development debts to the company debt as at 30th June 2016, a different picture of indebtedness emerges.
Current Loans |
$38m |
Non-Current Loans |
$389m |
Incremental Auckland Indebtedness |
$556m |
Incremental Adelaide Indebtedness |
$333m |
Total Loans |
$1,316m |
The MDRT now blows out to:
$1,316m / $152.3m = 8.6 years
I would describe this as getting towards the high end of 'medium indebtedness'. This is not unusual for a company with a relatively secure recession resistant cashflow stream available. I haven't considered any reinvestment via the dividend reinvestment scheme which would reduce this figure. But it is clear to me that SKC does not have a lot of room to move on any other capital initiatives.
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