South Shore Holdings has issued a profit warning ahead of an expected loss of HK$950 million (US$122 million) for the year ended 31 March 2021, adding to a similar loss of HK$1.02 billion (US$131 million) recorded 12 months earlier.
The profit warning was issued hours after the company requested a trading halt as of 9am Thursday pending the release of an announcement on inside information of the company.
South Shore’s trading halt follows the resignation earlier this week of three directors and the Company Secretary, adding to a litany of woes the company has faced in recent years – mostly attributable to its incomplete Macau hotel THE 13.
Originally planned to become “the most luxurious hotel in the world” – including a VIP casino that never materialised – THE 13 has instead been plagued with financial problems, prompting South Shore to actively seek a buyer. However, negotiations to offload a 50% stake for HK$750 million (US$96.7 million) fell through last year and South Shore has since missed its own stated deadline of a complete sale by 31 March 2021.
In October 2020, South Shore revealed a sale by the end of its financial year was necessary to avoid an Audit Modification after the company’s official auditor issued a disclaimer of opinion on its financial position, in part due to difficulties in quantifying the impact of “certain uncertainties” on valuation of the hotel assets. Those uncertainties included the effects of COVID-19 but also a lack of historical performance of the hotel – which has only ever operated at partial capacity – and an absence of other hotels to compare it with.
An Audit Modification had been proposed because the auditor’s disclaimer of opinion differed from the findings of an independent auditor previously used by South Shore, which valued THE 13 – including the cash-generating unit of hotel business such as hotel property, right-of-use assets, property, plant and equipment and other assets – at HK$4.1 billion (US$528.8 million).
South Shore also said in October that it was continuing frequent discussions with its bank after it was forced to apply for a “standstill” in April 2020 to prevent enforcement of security over THE 13 and liquidation of the company. The bank had in the preceding weeks issued a demand for immediate payment of HK$2.48 billion (US$320 million) owing under its facility agreement.
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