Sky City scotches cash dividend

Sky City says if shareholders want cash they can sell their bonus shares back to the company. Picture / File

In an effort to stabilise cashflow and reduce its use of tax credits, Sky City Entertainment will issue bonus shares to shareholders instead of cash dividends.

The bonus shares will be issued twice-yearly and are based on 90 per cent of Sky City's annual after-tax profit - the same amount as it pays in dividend.

But if shareholders still want cash they can sell their bonus shares back to the company.

Company spokesman Paul Gregory said the issuance of the new shares would only slightly depress the company's stock price but no more than if a cash dividend had been paid.

James Lindsay, of fund managers Tyndall Investment Management, said the new scheme was a signal the company's balance sheet was "getting tight and they need to retain capital".

Sky City's debt was roughly $1.18 billion as of the middle of last year and it had a debt to equity or gearing ratio of 39 per cent.

"Obviously, the balance sheet is in a position where they feel they need to reduce the capital leak of the dividend. This is one of the ways [of doing that], rather than cutting the dividend," said Lindsay.

He added that retail investors who were depending on the stock for its yield might think twice about holding the shares in their portfolios.

The company said yesterday that the new distribution scheme would enable it to maintain its equity base, reduce its net cash outflow and imputation credits.

The new structure will be in effect for the half-year ended December 31 onward.

Sky City said the bonus shares would not be taxable under tax law. If an investor chose the cash option, the amount received would be deemed a dividend for tax purposes and would have imputation credits.

New Zealand's largest casino company had previously paid its twice-yearly dividends in cash and given investors the option to receive shares instead. The shares fell 1c yesterday, closing at $4.62.

The company's share price dropped more than 14 per cent last year, partly because of smoking bans and harsher gaming regulations.