KEY POINTS:
Sky City Entertainment got a fillip today when the Northern Territory government granted Sky's casino in Darwin exclusive rights, essentially in perpetuity.
Its licence had been due to expire in 2015 and that has been extended until 2026.
In 2011, and at intervals of five years, the licence will be reviewed and extended providing Sky meets the territory's conditions.
One condition is that Sky commits A$30 million ($34.5 million) in capital spending to improve the facility -- something Sky said it was happy to comply with.
Chief executive Evan Davies told NZPA the significance of today's announcement was that subject to an ongoing contribution by Sky to the Northern Territory economy and periodic reviews, Sky had won a perpetual licence.
When Sky bought the business three years ago, there had been some questions about the licence life and those had now been resolved.
Even if Sky failed to meet performance obligations, it would have a 15-year term to retrieve the situation, Mr Davies said.
Expansion of the existing complex reflected Sky's confidence in the Darwin casino.
Darwin accounts for just over a tenth of Sky's earnings before interest, tax, depreciation and amortisation.
In October, the territory told Sky it was the preferred tenderer for the Little Mindil site adjacent to its casino but the final terms and conditions of the deal had not yet been nutted out.
The $34m capital expenditure it must spend before December 2009 is relatively small beer for Sky. This year alone it is spending $45m on revamping the floor of its Auckland casino.
Sky shares rose 8 cents to $5.26 today. The stock has underperformed the market in the last three months -- dropping 6 per cent while the benchmark index has gained 8 per cent.
Mr Davies said there had been residual concerns around the regulatory environment here and in South Australia.
Regulators are concerned casinos behave "responsibly".
"The concerns in the market are about potential further regulatory risk."
The market had taken a while to catch up with the nature of Sky's positive relationship with regulators, he said.
"I think we have a mutually positive relationship with our regulators. So I think we can expect a sensible approach from them."
Another concern was that Sky's Adelaide casino will be hit by a full smoking ban in October. Mr Davies said because there was a partial ban, where smoke-free areas had to be provided and smokers were banned from bars and tables, the effect would be less than the ban that was introduced in one hit in Auckland.
But analysts said any smoking ban results in lower turnover for casinos.
Sky's share price has been underpinned by the possibility of further rationalisation in the Australasian gaming market.
Would further mergers and takeovers occur? "The only real answer is that it's very hard to know," Mr Davies said.
Sky was a target for any business that believed it could extract more value than the current shareholders.
Sky's financial year ended on December 31 but it does not report publicly until the end of February, so Mr Davies is constrained in what he can say about trading.
The only thing he could say was that higher petrol prices had been hurting its business and "clearly, reduction in petrol prices provides some benefits".
An analyst, who did not wish to be identified, said Sky's growth was limited because legislation would not allow it to expand in Auckland.
"There is subdued growth prospects in Auckland and, given Auckland is 70 per cent of the business, it's a pretty key driver.
"Underlying conditions in Auckland market have not been particularly positive.
"We are not expecting any kind of even moderate type growth numbers coming through in their interim."
- NZPA
