Chile reminds Sun to focus on cards it holds

While Sun International has been roundly bested by competitor Enjoy in Chile, news that it has lost out on all but one of five municipal licences that it had bid for may not be such a bad thing after all, given the stress on the gaming and hotel group’s balance sheet.

Sun International’s subsidiary in the region, Sun Dreams, tendered for the two municipal licences it holds — Iquique and Puerto Varas — and for three more licences.

In Iquique it has secured 15 more years to trade at $10m — an “economic offer” that is payable yearly and increases with Chilean inflation.

That means it can go ahead with the construction of a $55m hotel and casino complex, which is expected to be finished in two years.

But Enjoy has scooped the other four, including the Puerto Varas property that Sun currently operates and that earned it ebitda of R183m in 2017 on revenues of R405m. This would have fallen “significantly” considering the obligatory economic offer — an extra fixed annual tax. Clearly, losing a high-margin business isn’t ideal but Sun can ill afford stretching itself in a region that has delivered less-than-juicy returns while it scrambles to address a debt burden that has mounted at home and that has necessitated a recent R1.5bn rights offer.

In its most recent set of results Sun said the municipal bidding process “could significantly change our position in Chile”. That sounds a bit like wishful thinking. It’s now time to make what it has, work.

Vodacom’s revised black economic empowerment deal makes a lot of sense and seems to be in the best interests of all parties.

It consolidates the black investor base under a single vehicle, JSE-listed YeboYethu, and gives those investors exposure to the group’s fortunes rather than just the domestic business. While the first scheme has proved to be a huge success, the replacement deal might not go far enough.

Even though the deal will cost Vodacom about R4.2bn to implement, it will only raise the group’s black ownership from 17% to 20%. A worst-case scenario for SA’s biggest mobile operator would be for regulators to go with an initial proposal that operators must be 30% blackowned to get access to new spectrum. Vodacom and its peers desperately need more spectrum to roll out their services faster and more cost effectively. While it does seem as though regulators are leaning towards requiring a level-four BEE rating rather than 30% black ownership, the latter proposal is certainly not completely off the table, especially considering that in other sectors, such as construction, the requirements are even tougher.

If the 30% hurdle rate materialises, MTN will hold the upper hand. In 2016, MTN said its Zakhele Futhi BEE scheme would ensure that it had at least 30% black ownership.

Vodacom will therefore possibly have to fork out even more to enlarge its BEE scheme.

Meanwhile, the company’s new employee share scheme is no doubt a great idea. Giving staff a stake in the business is arguably the best way to align their interests with senior management and to get everyone pulling in the same direction.