Echo to Raise A$454 Million by Selling New Shares
Echo Entertainment Group Ltd. (EGP), operator of Sydney’s only casino, plans to raise A$454 million ($455 million) selling new shares to investors at a discount to reduce debt and expand its high roller program.
Investors will be able to buy one share at A$3.30, or 27 percent less than the previous closing price, for every five they own, the Brisbane-based company said in a statement today. Echo’s biggest shareholder Crown Ltd. (CWN), controlled by billionaire James Packer, will take up its full entitlement.
The owner of Sydney’s Star casino wants to expand its VIP program to capture a greater share of high stakes gamblers as Crown seeks permission to increase its holding above 10 percent and rival Genting Singapore Plc (GENS) revealed it bought a stake. Echo also forecast earnings as much as 29 percent below analyst estimates amid “difficult” trading conditions.
“It’s a very steep discount for this type of offer,” Nick Berry, a Sydney-based analyst at Nomura Holdings Inc., said by phone. “The fact that shareholders are only happy to pay A$3.30 shows there’s still a big takeover premium in the share price.”
Genting and Crown may compete to take over Echo, Gary Pinge, the Hong Kong based regional head of gaming and consumer at Macquarie Group Ltd., said by phone June 8.
Echo said the money raised would help amend the structure of its equity and debt to be “more appropriate” to the VIP program.
High roller programs typically require a higher proportion of funds tied up in the day-to-day running of the business, to handle volatile winnings on large bets.
“During the course of each year the casino businesses can enjoy significant wins and sustain significant losses” in the VIP business, Echo said in a presentation today.
Still, the high roller business provides a “large growth opportunity” by boosting market share, Echo Chief Executive Officer Larry Mullin said.
The amount of money wagered in Echo’s VIP business is forecast to rise 62 percent in the year ending June 30 while its win rate will decline 0.5 percent, it said. Revenue from net winnings will grow as little as 2.3 percent, the company said.
While win rates in Echo’s non-VIP business also fell over the past six months and weak consumer sentiment has hurt sales, revenue in that segment is forecast to rise 3.9 percent as the Star benefits from a refurbishment program.
Echo, which also owns three casinos in the state of Queensland, said earnings before interest, tax, depreciation and amortization will be between A$270 million and A$315 million in the year ended June 30. The company amended its dividend policy to allow it to pay 50 percent of net income.
The forecast compares with the A$377.9 million average of 12 analyst estimates compiled by Bloomberg.
Echo has two revolving loans each worth A$480 million and maturing in 2014 and 2016, according to data compiled by Bloomberg. In May 2011, before its split from Tabcorp Holdings Ltd. (TAH), the company also said it would sell $460 million of private placement notes maturing in 2018 and 2021.
The proceeds of today’s announcement would be used to reduce the revolving loans if Echo can amend the terms of its notes by June 28, the company said. If bondholders don’t agree to change their terms, Echo will repay the private placement notes instead.
A bank, which Echo didn’t identify, had committed to provide a A$350 million bridging loan to repay the notes.
Packer agreed to cease a campaign against Echo after Chairman John Story stepped down June 8, Acting Chairman John O’Neill said June 12. Genting Singapore, operator of casinos in the city state, has also built a stake in Echo of 4.9 percent.
Story resigned after Crown, which owns casinos in Melbourne and Perth, called a meeting to vote on his removal and ran advertisements in local newspapers criticizing the company’s “underperformance” under his leadership. Packer has now withdrawn his request for a shareholder meeting.
To contact the reporter on this story: Brett Foley in Melbourne at firstname.lastname@example.org
To contact the editor responsible for this story: Philip Lagerkranser at email@example.com
Bloomberg moderates all comments. Comments that are abusive or off-topic will not be posted to the site. Excessively long comments may be moderated as well. Bloomberg cannot facilitate requests to remove comments or explain individual moderation decisions.