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Suncity warns of “significant doubt” in ability to keep operating

| By Robert Fletcher
Scandal-hit junket operator Suncity Group warned of a “significant doubt on the group’s ability to continue as a going concern” after reporting a net loss of HK$646.2m (£62.8m/€74.0m/US$82.6m) for 2021.
Raketech Q1

This loss was in stark contrast to a HK$1.27bn profit in the previous year.

Revenue for the 12 months to 31 December amounted to $340.4m, an increase of 87.0% from $181.9m in the previous year.

Gaming and hotel operations accounted for $248.4m of total revenue, while mall operations revenue reached $40.9m, hotel operations revenue $17.2m and consultancy revenue $3.3m.

Cost of sales increased 61.8% to $250.3m, which left a gross profit of $90.1m, up 231.3% from $27.2m in 2020. Suncity also noted $114.2m in other income and $825.8m in change in fair value of derivative financial instruments, but higher expenses elsewhere far overcame revenue growth.

Administrative expenses proved to be the main outgoing operating cost at $269.7m, while Suncity also reported a $287.1m impairment loss on property, operating right and equipment.

Further costs of $119.7m were not in relation to impairment loss on equity loans to a joint venture and a further $194.2m in impairment loss on loans to the joint venture. A $438.0m loss was also associated with the joint venture, while finance costs for the year reached $283.9m.

This left a pre-tax loss of $623.1m, a stark contrast to the $1.27bn profit posted at the end of 2020.

Suncity also paid $23.1m in tax, which resulted in a net loss from continuing operations of $646.2m, compared to the $1.27bn net profit in the previous year and higher than the full-year loss forecast earlier this month.

The business noted that it owed $823.1m due within one year, including $366.9m due tomorrow (31 March) and a further $220.2m due a the end of next month, plus an additional HK$303m to a related company.

As a result, it said that “these conditions indicate the existence of material uncertainties which may cast significant doubt on the group’s ability to continue as a going concern”.

“The directors have been undertaking measures to improve the group’s liquidity and financial position, to refinance its operations and to restructure its borrowings,” it added.

As a result of its financial position, the group has already opened negotiations on the sale of certain assets it holds, including land it owns in Japan. It has also negotiated with its creditors for delayed repayment of its loans.

The business will also work to further cut costs and pursue equity financing if necessary.

The loss comes as revenue from Suncity’s core junket business dropped from HK$123.8m in 2020 – itself a sharp decline from 2019, due to travel restrictions – to HK$42.8m in 2021. This business was then discontinued from 1 December, after the arrest of the group’s chairman, Alvin Chau.

Chau, who has since stepped down from his position at SunCity, has been accused of running an illegal online betting ring.

Alongside its original earnings update, Suncity claimed Gold Yield Enterprises had failed to pay back a US$30m loan. Gold Yield Enterprise is a joint venture between Suncity’s Star Admiral subsidiary and Alpha Era, an investment trust.

At the time of the loan, Suncity said Star Admiral and Alpha Era together owned a 67% stake in the Hoiana Resort in Vietnam.

Suncity and Alpha Era had lent Gold Yield this money last year in order to develop Hoiana. Suncity claims the loan was payable on 28 February, but that it has not been repaid. As a result, it says that Gold Yield Enterprise has defaulted on a US$34.9m debt to Suncity, when interest is included. It added that it would owe the same amount to Alpha Era.

Suncity had itself been the subject of loan default claims following Chau’s arrest, as an unnamed lender argued Chau had defaulted on a HK$313.6m debt. As a result, Suncity warned that the business could be seized by creditors.

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