Phumelela files for business rescue

Horse-racing operator Phumelela Gaming and Leisure has been placed in business rescue.

The company is battling for survival in the wake of South Africa’s Covid-19 lockdown, which has added pressure to a local gaming industry already hit by regulatory changes and an economy that was in recession for the last six months of 2019.

The country’s biggest horse-racing group, which has lost 77.09% of its value since January, said on Friday that since the lockdown came into effect on March 26, the horse-racing industry had not been able to stage race meetings, retail betting outlets had been forced to close and the company had been unable to generate sufficient revenue from its horse-racing or betting operations.

The board “is of the view that the best option to ensure the long-term survival of the company and the sport of horse-racing, is to  implement a business rescue plan,” Phumelela said.

Business rescue is a form of bankruptcy protection that allows a financially distressed company to delay creditors’ claims against it or its assets.

Phumelela said it was “financially distressed”, due to the fact that it was “reasonably unlikely” that it would be able to pay all of its debts within the next six months.

Phumelela’s move follows the actions of other high-ranking companies such as Edcon and Comair, which recently announced their decisions to go in business rescue, a move that could result in thousands of job losses.  

Phumelela said on Monday that its loss for the six months to end-January from local operations almost doubled to R115.1m, from R61.4m, previously, with Phumelela swinging into a loss for the period.

The Covid-19 outbreak has had a detrimental effect on revenue, closing some betting shops and halting racing, and Phumelela had previously warned that if the lockdown were extended into May, an estimated 40,000 jobs dependent on the industry were at risk.

The group is battling withdrawal of its 50% share of the 6% levy on punters’ winnings on fixed-odds bets on horse-racing in Gauteng, with effect from April 2019. This has cost it about R75m per year, and Phumelela said it was continuing to engage with authorities in the province.

The group reported a headline loss of R886,000 in its six months to end-January, compared with a headline profit of R68m in the prior comparative period. Headline earnings is a widely used profit measure in SA, stripping out exceptional items to give a better indication of the underlying performance of a business.