Junket operator Suncity Group is still reeling from the arrest of its former boss, Alvin Chau, and COVID-19 issues in Macau. To stop the financial hemorrhaging, it is letting go of two business units – for less than $1.
Suncity Group is beginning to fulfill its mission of reducing its footprint in order to lessen its financial overload. It announced earlier this month, after reporting $60 million in losses last year, that it would cut away certain businesses in order to regain financial ground. This comes after it shut off its travel business and other activity to reduce the strain.
In an announcement with the Hong Kong Stock Exchange yesterday, Suncity stated that it will sell two groups of wholly-owned subsidiaries. While the sales price won’t put money in its pockets, it will produce long-term benefits. The junket operator is selling the assets for a total of HK$1.00 (US$0.13).
Losses Necessary to Realize Gains
Although the sales price barely registers as a blip on the radar, Suncity is looking at the bigger picture. In extricating the businesses from its portfolio, it will rid itself of unwanted debt that is weighing it down. The company will no longer be responsible for the debts and loans carried by the entities, which Suncity says equates to savings of around HK$127.8 million (US$16.28 million).
Per the filing with the exchange, only an agreement to sell the assets is in place. The deal is still subject to normal regulatory oversight in order to be successful. Only then will Suncity receive the benefits.
Great Promise Developments Ltd, a company incorporated in the British Virgin Islands, is the buyer, according to Suncity. That entity is owned by Zhong Jianhua, a businessman with apparent ties to one of the lending companies with which Suncity has dealings. Zhong reportedly owns 50% of that lender.
The group of companies Suncity will offer includes Shenzhen Sky Alliance, which has two outstanding loans. One has a principal amount of HK$366.92 million (US$46.74 million) and is secured by loan receivables worth HK$613.68 million (US$78.18 million). However, Suncity asserts that recuperating those receivables in a timely manner to pay for the loans is an insurmountable task.
The second loan, with a different lender, has a principal amount of HK$220.15 million (US$28.04 million). In both cases, the interest rate is just 1.5%. However, both were due at the end of last month, with Suncity unable to keep up with the payments.
Suncity’s Footprint Shrinks
There are a total of seven entities that will transfer ownership through the agreement. Among them are holding companies, as well as businesses that manage and operate malls and other commercial properties in China, Japan and other Asian countries.
The holding companies, designated Disposal Groups A and B, are not in good financial health. Disposal Group A had unaudited, consolidated net liabilities of HK$464.8 million (US$59.21 million) at the end of last year. For the last two years, it has reported consistent pre- and post-tax losses on its revenue.
Disposal Group B is in a similar situation. This group had unaudited, consolidated net liabilities of HK$76.5 million (US$9.7 million) at the end of 2021. Its pre- and post-tax losses on revenue weren’t as drastic as those of Disposal Group A, but still contributed to Suncity’s negative financial situation.
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