Tsogo Sun has taken the first steps towards a radical portfolio reorganisation at a time when legislative developments in South Africa’s western cape could open up a litany of expansion opportunities. Competing operators however, are less enthused at the prospect.
Recent market contractions coupled with consolidation programmes being undertaken by South Africa’s largest operators had seemingly put a pin in expansion, for the short term at least. However, the expiration of regional exclusivity deals in the the western cape could see a spate of new developments in the recently-opened areas should the already-proposed legislation authorise as such.
It is against this backdrop that one of South Africa’s two largest casino operators, Tsogo Sun is reorganising its portfolio to facilitate the division of the business into three key operational arms. As part of the reshuffle the company is selling seven of its casino and hotel businesses to Hospitality Property Fund (HPF) in a shares and subscriptions deal worth around $1.7bn (R23bn). Once completed Tsogo Sun will own close to 87 percent of all shares in HPF.
The casino operator’s board commented that the sale is part of its ongoing strategy to establish three distinct operating divisions across property, gaming and hotels.
“The board anticipates that the separation of Tsogo Sun into these three focused divisions – and separate listed entities – will unlock value and provide greater investment choice for Tsogo Sun shareholders. On conclusion of the transaction, Hospitality is expected to own investment properties with a total fair market value of about R36bn ($2.67bn). It is Tsogo’s ultimate intention to unbundle their shareholding in Hospitality to its shareholders and has warranted to Hospitality to do so at a time and in a manner that does not have any adverse consequences to Hospitality,” it said.
The company, along with main competitor Sun International has been feeling the affect of a slowing South African economy throughout the first half of 2018 and has responded in turn by attempting to streamline its operations. This saw investment spending in the fiscal year to 31 March drop to around $261.5m (R3.25bn) as it looks to establish a more resilient financial footing going forward.
Despite this down tick in investment Tsogo Sun still has grand plans both in South Africa and further afield. The first quarter saw the company continue to work on a $84m (R1.16bn) development in Durban, advance plans in Zambia and Ghana, whilst also potentially lining up a bid for a property relocation to the Cape Metropole.
The latter comes as the South African lawmakers have proposed a bill that would allow for the siting of casinos in the newly established Trade Bay and eastern region, much to the chagrin of those already operator in the locality.
The legislature seeks to amend the existing Western Cape Gaming and Racing Act, 1996 and will allow the Western Cape government authority for the relocation of gaming premises. Currently there is casino gaming in five of the Cape’s municipal regions with each protected by a 10-year exclusivity agreement which now has run out.
Tsogo Sun CEO Jacques Booysen stated that the company would support the amendments: “We have seen the draft legislation and will submit our comments in terms of the process, with comments due by July 31. We are supportive of the possibility of relocating outlying casinos into the metropole as long as this is done in a manner that makes commercial sense for us.”
However, Anthony Leeming, chief executive of Sun International was less enthused about the prospect. The company already operates the Grand West Casino and he commented that there location of competitors may have an adverse impact on performances, estimating that the existing Sun property could see a 24 percent fall in GGR.
He said: “The amendment, if granted, will permit the respective casino operator to relocate their licensed operations from their existing locations in the outlying areas to the newly established Table Bay and eastern region. The headcount will likely decline by 15 to 20 per cent.
“The majority of job losses will be from the casino, but a drop in footfall will result in additional and similar job losses in the supporting operations at GrandWest, as many of these businesses are entirely dependent on footfall generated by the casino.”