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Sol Kerzner with Lucas Mangope in 1977 above.
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Waning local Sun vindicates Sol Kerzner cashing in his chipsMarcia Klein looks at how a casino visionary rolls the diceSUN International SA's run of bad luck and its rather gloomy prospects are a far cry from the more heady, prosperous days of Sol Kerzner, the man who seemed to singlehandedly build Sun International into a dominant casino resort group with major investments in the homelands and a near monopoly on casino operations in the southern African region. His departure from SA at the end of the 1980s and his gradual withdrawal, over years, from the local operations seems, with hindsight, to have been particularly opportune. Over the past few years Sisa's fortunes have waned, while Kerzner's international empire, now held through New York-listed , Sun International Hotels (SIH)has been going from strength to strength.
Unfortunately, Kerzner's name has become well known not only for his grandiose casino projects but also for the much-publicised allegations that he had, in 1986/87, paid then prime minister of the Transkei, George Matanzima, R2-million in return for a gambling monopoly for Sun International. While his reputation as a casino visionary probably helped secure the Paradise Island operations in the Bahamas (for $125-million), build the Mohegan Sun casino in Connecticut and buy, for $300-million, the Resorts Casino Hotel in Atlantic City, his Transkei history could cost him the latter investment and possibly the future of his group. After being cleared of all charges in SA this year, Kerzner again found himself in the spotlight on the same issue when he applied for a permanent licence to own and operate the Resorts Casino Hotel. After the dirty linen was aired in public for the umpteenth time, the New Jersey Control Commission this week postponed its decision on whether to grant him a permanent licence to operate the Atlantic City casino. Granting of the licence will clear his name. After saying it would decide his fate by Thursday, the commission postponed the decision to October 22 as it needed more time to complete its written decision and because its head was at a gaming convention. It said nothing should be read into the postponement. Kerzner is obviously hoping the issue will now, at last, be buried, for it has never really been adequately resolved since the news of the R2-million payment was made public in 1989. Kerzner immediately resigned from the boards of Safren, Kersaf, Sun International, Interleisure, Sun Bop and Royale Resorts. He also sold his 20% of Sun International to Safren and moved to the UK. Transkei Attorney-General Christo Nel doggedly spent the better part of six years pursuing the case, but it appeared no progress was being made. This year Kerzner took the bull by the horns and applied (successfully) to the Umtata High Court for an interim interdict to stop his arrest or extradition from the UK. And, in March, Nel took everyone by surprise when he said in a letter to parliament's portfolio committee on justice that he had decided not to prosecute. The reasons for this about-face were vague. According to Nel, there was new (undisclosed) information which had shed new light on the case. At the time Kerzner said how happy and relieved he was that, after the years of uncertainty, his name had been cleared. Yet the issue resurfaced this year when he applied for the Atlantic City licence. The issue at stake was his "good character, honesty and integrity". Meanwhile, he seems to have successfully extended his southern African expertise internationally. Recently, SIH reported 82% higher earnings of US158c a share in the year to December 1996 on gross revenue of $252.2-million, up 13% on the previous year's $223.2-million. Operating income was up 49% at $34.3-million ($23-million) and net income was 150% higher at $45.7-million ($18.4-million). About 50% of group turnover came from the Bahamas, his first major international investment, which enjoyed occupancies of 87% in the year to December 1996. SIH bought Paradise Island Resort in the Bahamas in 1994 for $125-million, spent $140-million in an initial redevelopment and has now begun work on a $450-million expansion, which will be completed by the end of next year. The group's second major investment was the $300-million Mohegan Sun, a joint venture with the Mohegan tribe situated in a reservation in Connecticut, north of New York. The Mohegan Sun, which opened a year ago, was turning over $1-million a day by year-end and has started to produce healthy earnings. In December SIH consolidated its position on the East Coast, buying Griffin Gaming and Entertainment, which runs the Resorts Casino Hotel in Atlantic City. It paid $210-million and assumed its debt of $127-million, and expects estimated revenues of $463.8-million this year. In his 1996 annual report Kerzner said there were plans to significantly upgrade the Atlantic City property this year, and a major expansion was planned to transform it into something "truly unusual". The development, which would compete in quality, scale and innovation with Atlantis in the Bahamas and the Mohegan Sun, would open during 2000. SIH listed in New York in May 1994 at $15, giving it a market capitalisation of $150-million. By the December 1996 year-end, the market value was $1.2-billion. The Kerzner family has a 16% share of SIH, valuing its shareholding at year-end at more than $190-million. The share is currently trading at about $35. Kerzner said in the 1996 annual report that SIH's primary financial goal "is to deliver average sustainable growth in earnings a share in excess of 20% per annum". Meanwhile, Sisa has had the deck stacked against it. Prior to the 1994 election it was faced with stiff competition from illegal casinos and uncertainty about the future of the homelands. One thing was certain: a new government would not let it hold onto its monopoly. The group merged its separately listed homeland companies into one, Sisa, in 1995. There has been criticism that the company continued to expand, opening the costly Lost City and the Carousel long after it was aware that the environment in which it operated was about to change significantly. In the year to June, Sisa reported a marginal 1% rise in attributable earnings to R390.2-million on 8% higher revenue of R2.3-billion. The results reflect pressure on occupancy levels and significant losses at Sun City. Sisa was negotiating to dispose of five gambling operations and to close certain others in order to comply with the new gambling dispensation. Kerzner is lucky to be out. And if he is awarded the Atlantic City licence, the dice would certainly be loaded in his favour. A clear name will pave the way for a much smoother application for an $800-million hotel in Las Vegas, Nevada.
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