Donaco International is looking to urgently raise $14.4 million as it desperately needs to strengthen its balance sheet. Directors of Donaco revealed the firm is urgent need of capital because of the impact of COVID-19 on its operations.
The Australian Securities Exchange (ASX) listed company runs casinos in the Asia-Pacific region. Star Vegas Resort and Club at Poipet is on the Cambodian border with Thailand. Lao Cai on Vietnam’s border with China is where you find the Aristo International Hotel.
Both these casinos closed during the height of the COVID-19 pandemic. The shutdown was temporary, but while the Donaco property in Vietnam has reopened, its Cambodian casino remains closed.
Revenues for Donaco have, unsurprisingly, fallen dramatically. Its Vietnam business resumed operations but a massively reduced capacity. This is because there are strict travel restrictions in place in the region and internationally.
Donaco released a trading update in late April that highlighted the impact of COVID-19. It reported to shareholders that quarterly revenue fell from $25.5 million to $10.53 million year-on-year. Shareholders also learned Donaco has negative cash flow from operations of $5.1 million. Its net debt increased from $50.9 million to $60.8 million.
The company revealed it had $18.87 million in cash, but continued monthly costs of approximately $1.225 million were eating into this reserve.
Two Major Donaco Investors Could Increase Share Holding
Donaco is raising capital “by way of a fully underwritten pro rata non-renouncable entitlement offer”. Investors can purchase one new share for every two existing shares at an issue price of $0.035 per share.
Lee Bug Huy and Lee Bug Tong currently control a 17.99% stake on Donaco. They are fully underwriting the offer. This stake might increase to 45.33% of all shares on issue once the capital raising exercise completes. The offer closes on July 23.
It seems strange Huy and Tong are offering this service because of their previous litigation with Donaco. An Australian court froze their pair’s shares, and those of other Thai investors, until they agreed not to dispose of their 148.2 million Donaco shares within a six-month period starting from March 2.
Perhaps they see it as an opportunity to take an almost controlling stake in Donaco relatively cheaply?
Chairman Explains the Need To Raise Capital
Donaco urgently requires capital according to a statement to the ASX. Its directors blame COVID-19 for the company’s current plight.
“The Directors of the Company have determined that the Company is in urgent need of capital as a result of the impact of COVID-19 on the Company’sgaming operations and the requirement to make repayments under the Company’s debt facilities with Mega Bank. As part of the capital raising process, Donaco has approached a number of parties and assessed various options available for underwriting or other funding options.
“However, due to the COVID-19 financial environment and the current status of the Company’s borrowing with covenant waivers being required, the Company was not able to identify any appropriate alternative sources of capital.”
Donaco’s key objectives of limiting debt and preserving shareholder value benefit from the new raised capital. Non-Executive Chairman Mel Ashton wrote these words in the ASX statement.
Ashton also revealed the capital provides immediate financial stability for Donaco.
“This capital injection will enable us to stabilise our immediate financial needs, and meet the upcoming repayment requirements on our borrowings.”
Non-executive directors Ashton and Simon Vertullo will retire from the board one the entitlement offer ends. Lee Bug Huy and Lee Bug Tong will join as Non-Executive Directors.
Vertullo is a vastly experience chartered accountant who’s held roles in Australia, Asia, and the United Kingdom. Ashton has 37 years’ business experience and is also a chartered accountant. It’s believed Ashton will focus on his other Non-Executive Director roles in other industries.