JOHANNESBURG (Reuters) – Sun International has negotiated easier borrowing terms with its lenders, two sources told Reuters, giving South Africa’s largest casino company a year of financial respite as the third wave of COVID-19 hits the tourism industry.
The deal with Standard Bank, Absa Group and Nedbank significantly helps Sun to avert any prospect of default, said one source who was directly involved in the deal.
It’s also a sign that banks will continue to support the affected hospitality industry as a whole, a second source from a Sun executive said.
As of March 31st, Sun owed 7.67 billion rand ($ 538 million).
“Absa and other lenders continue to support Sun International and management’s actions,” Absa said in an email response without elaborating.
Standard Bank and Nedbank declined to comment.
Sun said it will announce any new information with its interim results in September.
South Africa is the continent’s worst-hit country in terms of coronavirus cases and deaths, accounting for over a third of confirmed infections and over 40% of deaths. Only 6% of the country’s population received one or more doses of the vaccine.
The government has tightened restrictions recently as cases have resumed, causing most hotels and casinos to temporarily close.
Sources said the new deal concerns payment terms known as covenants, but declined to provide exact details.
The covenant is usually a measure of the ratio of debt to principal (EBITDA) and is closely monitored by banks as part of the loan repayment terms.
“A new covenant was made, which is clearly higher. And this is likely for a 12-month period and will be measured on a quarterly basis, ”said a source directly involved in the deal, adding that it was signed at the end of June.
A higher ratio would have allowed Sun to have more debt or lower operating income, or both.
Wayne McKerry, portfolio manager for the investment arm of the FNB banking group, said the waiver is “extremely” important to the hospitality sector.
“Banks know that the hospitality industry needs to stay afloat until the end of this year or early next year, and after that, South Africa’s consumer spending figures show that there is actually going to be a boom,” he said.
Reporting by Promita Mukherjee and Nkobile Dludla; Mark Potter’s revision