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Tabcorp dumps dividend to secure debt waiver

“Tabcorp is also in advanced discussions with its US private placement holders (which represent fully hedged debt equivalent to $2.1 billion) to obtain changes to existing covenants to provide additional flexibility to accommodate the impacts of COVID-19.”

Tabcorp has tried to lower it cash burn during the health crisis by standing down 700 employees at least until June 30, telling remaining full-time staff to work only four days a week and cutting IT contractors by 40 per cent (or 160 positions).

The company also deferred payments of payroll, Keno and lotteries taxes for six months from April, boosting its liquidity by around $40 million a month.

Tabcorp said it now had $820 million in available liquidity, up from $749 million on April 3, which analysts said was partly thanks to the deferred tax payments. Tabcorp has a $171 million loan due in December and a working capital facility of $225 million due in July 2021 and no other debt maturities until April 2022.

“The waivers complement recent actions we have taken to preserve our liquidity and mitigate the financial and earnings impacts of COVID-19,” Tabcorp chief executive David Attenborough said in a statement.

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“Tabcorp continues to work proactively and collaboratively with all our stakeholders to emerge from the COVID-19 period as strongly as possible.”

Macquarie analyst David Fabris said that apparent willingness of debt holders to support Tabcorp through the COVID-19 crisis was an incremental positive because it reduced the risk the company would need to raise capital.

Whether capital raisings would be necessary now hinged on Tabcorp’s negotiations with the holders of its $2.1 billion US private placement debt, Mr Fabris said.

“There also continues to be sufficient liquidity available to support operating requirements [and] near-term debt maturities,” he said, adding that the sacrificed dividend should not be a surprise given the impact COVID-19 has had on Tabcorp’s near-term earnings and leverage.

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Macquarie believes Tabcorp will not resume paying dividends until 2023.

Evans & Partners analyst Sacha Krien also said a capital raising now looked avoidable, “subject to a further deterioration in trading, which looks unlikely at this stage”.

Tabcorp’s shares closed 2.5 per cent higher at $3.25. The stock has fallen from $4.65 on February 14, however it has recovered from its COVID-19 lows of $2.18 in late March.

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