Echo announces $454m equity raising

Echo Entertainment Group's big spending plans for the Gold Coast's Jupiters Hotel and Casino will be underpinned by a $454 million equity raising announced yesterday.

Echo said funds raised would be used to reduce debt and improve the company's balance sheet, increasing the chances of a full roll-out of the planned $350 million redevelopment of the Broadbeach casino.

Echo plans to raise funds through the issue of one new share for every five held by shareholders, at $3.30 per new share.

Shares in Echo are in a trading halt, which will be lifted on Monday, and last traded at $4.49.

Echo chief executive Larry Mullin said: "The entitlement offer ... will reduce gearing, help ensure a more appropriate capital structure, and maintain financial flexibility for the company."

The equity raising comes as Echo deals with an expected fall in earnings of up to 39 per cent.

Echo has said it expects to report earnings of between $270 million and $315 million for the year to June 30, down from $446 million in the previous financial year.

Trading conditions remained difficult in the second half of the 2012 financial year, with revenues negatively affected by soft consumer sentiment and volatility in income generated by the VIP gambler business.

The range in expected earnings is due to the potential range of win rates against high-wagering gamblers.

Echo said its major shareholder, rival casino operator Crown, would take up its full entitlement offer, although Crown's stake in Echo would remain at 10 per cent.

Echo Entertainment is being circled by Crown, owned by James Packer who wants to establish a new casino in Sydney, but needs the support of Echo to do so.

In May, Echo said it would book a writedown of $29.9 million associated with its international high-rollers business in its full year accounts.

One of Echo's partners in attracting VIP players, SilkStar Global Marketing, was placed in liquidation in March and had not repaid $7 million that Echo had provided in development fees and prepaid commissions.

Fat Prophets analyst Greg Fraser said the capital-raising came at a time when the domestic consumer environment was weak and Echo had already spent a large sum upgrading its Sydney casino, The Star, and intended to refurbish its Queensland casinos.

"You could argue that the timing has been a little unfortunate, and Echo is not going to very quickly see any strong return on that investment," he said.

Mr Fraser said The Star casino had potential and Echo needed some help in managing its VIP business.

Whether Crown could convince the Echo board and management to do things in a better way remained to be seen.

"The Echo people will understandably be wary of Crown's intentions and won't want to be seen to be yielding to its influence because that would be perceived as Crown having control of Echo for just 10 per cent of the equity," Mr Fraser said.

Source: Goldcoast.com.au, 16 June 2012