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SkyCity may get $40M from Fletcher Building for convention centre delays, analyst says

Wednesday 2nd May 2018

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SkyCity Entertainment Group could be paid $40 million from construction firm Fletcher Building because of delays in completing its convention centre in Auckland, according to an analyst estimate.


The casino company foreshadowed yesterday that its $703 million New Zealand International Convention Centre and Hobson Street hotel project under construction by Fletcher Building will be delayed a further six months until December 2019. When Fletcher won the contract in October 2015, construction was predicted to start in late December that year and last 38 months, meaning the centre would have been delivered by February 2019, however after Fletcher ran into problems with cost blowouts, SkyCity said last year that the project deadline had been pushed out to mid-2019.


SkyCity reassured investors and analysts at a Macquarie Investor Conference in Sydney yesterday that its investment in the projects was expected to be in-line with the original budget of about $703 million, and it remained comfortable with the contractual arrangements, having earlier said that 90 percent of the construction costs were fixed or capped under its contract. The construction contracts provide for liquidated damages which should mitigate losses through delay, it said yesterday.


First NZ Capital gaming analyst Paul Turnbull estimated in a research note published today that SkyCity may receive $40 million in liquidated damages from Fletcher Building in the casino company's 2020 financial year, as a result of the delay in completion of the convention centre project.


The most significant earnings impact from the revised start date is to reduce earnings before interest, tax, depreciation, and amortisation by $11 million in 2020, with less material negative revisions relating to carparks, the main gaming floor, food and beverage and convention stream earnings, Turnbull said. 


First NZ has a 'neutral' rating on SkyCity stock and a 12-month price target of $3.75. The shares slipped 0.3 percent to $4.03 in early trading today and have shed 2.7 percent this year.


Fletcher Building shares last traded at $6.20 and have dropped 15 percent this year.



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