SA’s largest horse racing group, Phumelela Gaming & Leisure, is to receive a cash injection from the Oppenheimer family, averting what might have been the demise of the sport in the country after the company filed for business rescue on Friday.
The group, which among others operates the Vaal racecourse, is believed to have a fighting chance to survive the business rescue process after a post-commencement loan agreement was offered by family office Mary Oppenheimer Daughters.
Wehann Smith, member of a restructuring task team mandated by Mary Oppenheimer Daughters and director of the Racing Association, told Business Day the total amount of the post-commencement finance deal is R100m. “That R100m was determined based on projections by the financial team at Phumelela in terms of what their cash requirements will be, for what we believe is enough money to structure a deal with the business rescue practitioner,” Smith said.
The company hopes to turn the corner within the next six months, he said. “From the Oppenheimer family perspective this is not an attempt to save the company as such, it really is an attempt to save an industry as a whole. The failure of Phumelela would have had an absolutely devastating effect on the industry; it could end the industry,” he said.
The gaming and leisure company’s business rescue application follows those of a string of other financially distressed companies in SA, including Edcon, SA’s second-largest nonfood retailer, and aviation group Comair.
In common with many such companies, the effect of the lockdown imposed due to the coronavirus pandemic sent Phumelela to the brink of collapse as the horse racing industry froze race meetings and closed retail betting outlets, leaving the company unable to generate revenue from its operations. The company previously warned that if the lockdown persisted into May it would leave about 40,000 jobs in the sector vulnerable.
It said last week it had recorded losses from local operations of R115.1m for the six months to January, from R61.4m previously. Phumelela’s debt burden is R323m. At its last trade the company had a market value of just R42m. In late 2016, when the market was more enamoured with its sports betting offerings, the group was worth about R2.6bn, and in May 2019 it still carried a market value of about R700m.
Regulatory constraints that came into effect a year ago — such as the withdrawal of its 50% share of the 6% levy on punters’ winnings on fixed-odds bets on horse racing in Gauteng — have cost it R75m annually. Phumelela is still engaged with the Gauteng authorities on that matter. For the year to June 2019 the group reported losses of almost R170m as a result.
Anthony Clark, an independent analyst and founder of Small Talk Daily Research, says that while the financial relief offered by the Oppenheimers is encouraging, what is needed is a resolution of Phumelela’s tiff with the Gauteng Gambling Board on how the sharing of income from the punters’ levy will benefit the entire racing industry. “I think it [Phumelela] will survive, but in a much different format,” Clark says.
“The betting licences, the assets that it owns, are significantly in excess of the current market value and significantly in excess of the current debt pile, but going forward there needs to be much more buy-in and probably a significant inclusion of BEE partners to try to transform the industry.”
Clark says Phumelela, with assets exceeding R842m, has a solid asset base to recover from. “I would guess that it needs between R200m and R300m just to cover its debt and provide working capital going forward, for the company to survive. It actually needs to reach an agreement with the various gaming boards to fundamentally restructure the betting tax and the levies ... only then can the company properly survive and have a base to move forward,” he said.
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