Notes to the Group financial statements

for the year ended 30 June

36.   SUBSEQUENT EVENTS        
  The following events have taken place since 30 June 2014:  

     
(i)  During April 2014 public hearings were held in relation to the Group’s application to amend its Morula licence to allow the relocation of the licence to Menlyn Maine on the east side of Pretoria. On the 31st of July 2014, the Gauteng Gambling Board (“GGB”) announced that the Group’s application had been approved thereby permitting the relocation of the casino from Mabopane to Menlyn. The approval is subject to conditions that are reflective of the commitments made in the application.  

  Detailed planning of the R3 billion development will now commence in conjunction with further engagement with the GGB to conclude detailed agreements for the amendment of the Morula licence conditions. The development is part of an R8 billion, 315 000 m2 precinct of which R825 million is either already built or under construction. Sun International will provide the entertainment node which includes a 110 room five star hotel, 8 000 seat entertainment arena, convention and exhibition facility and a casino with 2 000 slot machines and 60 tables.  

Notification has been received of certain legal objections to the proposed relocation and development and these are being addressed. Once the amendments to the Morula licence are issued by the GGB and in the absence of any legal impediment the detailed planning and construction of the casino will commence and is anticipated to take approximately 36 months.  

(ii)  As announced on SENS on 18 August 2014 Sun International has entered into agreements with Minor International Pcl (“Minor”), a large global company with investments in hotels, restaurants and lifestyle brands, whereby Sun International will dispose of a significant portion of its African portfolio to Minor. The interests Sun International will dispose of and its shareholding pre and post the transaction are set out in the table below:  

    Effective ownership  
    Pre the  
transaction  
% disposed   Post the  
transaction  
  Gaborone Sun   80%   80%   16%  
  Kalahari Sands   100%   80%   20%  
  Lesotho Sun and Maseru Sun   47%   80%   9%  
  Royal Swazi and Ezulwini Sun   51%   80%   10%  
  Royal Livingstone and Zambezi Sun   100%   50%   50%  
  On conclusion of the transaction the Royal Livingstone and Zambezi Sun will be accounted for as a joint venture, Gaborone Sun and Kalahari Sands as associates and Lesotho Sun, Maseru Sun, Royal Swazi and Ezulwini Sun as available-for-sale assets. The collective purchase consideration amounts to R664 million plus the face value of any shareholder loans.  

  Sun International will continue to manage the casino operations situated at each of the assets and Minor will assume day-to-day management responsibility for the hotel operations other than the Royal Livingstone and Zambezi Sun, which will be jointly managed under a joint venture arrangement. The agreements reached cater for a sharing of management fees, the marketing of the properties, and the provision by Sun International of support services. Starting with the existing African assets it is the intention of the alliance to explore other hotel and gaming opportunities in particular those that may arise in Africa and Asia.  

The proposed transaction is subject to various regulatory approvals and the relevant submissions have been made.  

(iii)  The Group’s application for a casino licence in Cartagena, Colombia was approved by the Colombian gaming regulator on 28 July 2014. This paves the way for the Group’s proposed casino, which forms part of a mixed use development in Cartagena. The casino, which will be developed at a cost of US$30 million, will have 310 slots machines and 16 tables. The Group will lease the casino component of the development which includes a 284 room, five star InterContinental hotel, convention centre, shops, theatres, apartments and offices. Whilst relatively small, this opportunity is viewed as a low risk entry into the very attractive Colombian market. We are starting to mobilise the construction company and expect the casino to open in 2015.  

(iv)  It was announced on 13 May 2014 that the Group has concluded a transaction which will see Grand Parade Investments Limited (“GPI”) exit its investments in SunWest and Worcester. Tsogo Sun Holdings Limited (“Tsogo”) will acquire a 40% shareholding in both properties including the acquisition from Sun International of a 14.9% interest in each of SunWest and Worcester for a combined cash consideration of R635 million. GPI has, since inception, been the primary BEE stakeholder in SunWest and Worcester and wishes to monetise its stake in these assets in order to pursue other interests. Tsogo has limited exposure to the Western Cape metropolitan markets and wishes to enhance its presence in this market. Sun International and GPI are of the considered view that Tsogo is the only party that can provide similar BEE ownership credentials to that of GPI and furthermore Tsogo has the financial capability to implement a transaction of this magnitude.  

  Tsogo will have representation on the board of directors of SunWest and Worcester however it will have no operational responsibility or interaction as all operations will continue to be managed by Sun International Management Limited under each of its existing management contracts.  

  The proposed transaction is subject to competition commission and gambling board approval and the relevant submissions have been made. Shareholders voted in favour of the transaction at the annual general meeting held on 22 August 2014.  

(v)  As announced on SENS on 13 May 2014, Sun International will acquire up to a 70% interest in GPI Slots. GPI Slots is the holding company of GPI’s limited payout (“LPM”) gaming operations that own and operate LPMs. Given the fast growing nature of the LPM and EBT industry in South Africa and the negative impact thereof on the Group’s traditional casino business, a strategic decision was taken to look for opportunities to enter this space.  

The acquisition will be made in three tranches with an initial acquisition of a 25.1% interest in GPI Slots for a cash consideration of R225 million plus 25.1% of the face value of shareholder loans. The Group has options to acquire a further 25% interest in one year’s time and an additional 20% one year thereafter.  

The relevant submissions to the Competition Commission and gambling boards have been made. While the regulatory process may still take some time we expect all approvals to be received by November 2014. Shareholders voted in favour of the transaction at the general meeting held on 22 August 2014.