Workers pay for Sun International’s failed gamble

After a 96% loss in revenue following the pandemic, the hotel chain is retrenching workers in South Africa and Chile. But is Covid-19 being used as an excuse after bad investments?

The South African Commercial, Catering and Allied Workers Union (Saccawu) says Sun International is trying to “avoid its failures” by hiding behind the Covid-19 pandemic. Saccawu spokesperson Mike Sikani said the union had a problem with how South African companies take money out of the country and invest it in bad ventures overseas, adding that workers were being made to “pay double” for failed Sun International investments in South America.

Saccawu has accused the hotel chain of reneging on a retrenchment agreement, saying negotiations between the two parties were now deadlocked. Sikani said the company was being “intransigent”. “They simply don’t care about workers’ lives,” he said, adding that the union was consulting with members and would soon announce legal action or a strike.

Sun International chief executive Anthony Leeming confirmed that the agreement with Saccawu had fallen through and it would move ahead with Section 189.

Broken agreement

Sun International employs 9 000 workers in South Africa and has announced plans to retrench 2 300 of them. More than half of the proposed retrenchments will be at Sun City in North West province, with the rest split between Maslow Sandton, Boardwalk, Table Bay and the Wild Coast.

In the middle of August, the union and Sun International had been negotiating for two months when they agreed to extend the negotiations for a further two weeks to facilitate a voluntary retrenchment and early retirement process, before continuing with the Section 189 retrenchment process.

Sikani said the agreement was that the numbers from the voluntary retrenchment and early retirement process would be subtracted from the 2 300 workers Sun International planned to retrench. The union hoped that about 350 workers would take up the voluntary packages. In the end, the process attracted 818 workers. This left 1 482 workers to be retrenched by the hotel chain. 

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But Sun International wants to retrench 1 813 workers on top of the 818, which would mean it was letting go of 2 631 workers.

“In the voluntary retrenchment and early retirement process, we received and accepted requests from employees in unaffected positions given the difficult position the industry finds itself in. In a few cases, this will create positions for employees in affected positions. But unfortunately, in most cases it will not. Of the 818 voluntary retrenchment and early retirement applications received, only 493 comprised affected positions,” said Leeming.

In Chile, Sun International plans to retrench 1 000 of its 4 000-strong workforce.

Lockdown or a failed venture?

When Sun International recently announced its interim results at the end of August, it reported a 96% drop in earnings, down from R2.1 billion to R79 million.

Leeming said the Covid-19 crisis and extended lockdowns imposed in all markets where the group operates had tested its resilience to the limit.

“We’ve had to make some painful decisions, but I’m extremely proud of the speed and effectiveness of our response, which has put the group on a sound footing as we push ahead now that lockdown restrictions have been significantly eased in South Africa,” he said.

One of the painful decisions was across-the-board payroll reductions of up to 60%. “The Covid-19 pandemic has hit the gaming and hospitality sector particularly hard and forced us to make some tough choices to protect the business and to as far as possible limit the impact on employment,” said Leeming. “While we anticipate the recovery will take time, we have placed the group on a firm footing for the future.”

Gambling on South America

In 2008, Sun International began investing in South America. At first it was cautious: the Monticello Casino in Santiago, Chile, was its toe in the water. By 2012, the Monticello was delivering 14% of Sun International’s group revenue and 10% of its profit.

Around 2013, according to former Sun International chief executive Graeme Stephens, who left the company in 2017, a decision was made that the company needed to acquire “critical mass in Latin America”.

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In the following two years, Sun International would be involved in the Ocean Sun Casino in Panama and the Nao Casino, which Sun International’s 2013 annual report describes as a “low-risk entry” into Colombia.

The Ocean Sun opened in October 2014, and Sun International’s 2015 annual results report that trading had been disappointing.

Chilean merger

In June 2016, Sun International subsidiary Sun Latam, which housed the South American businesses, merged with Chilean gaming company Dreams SA, to form Sun Dream SA.

The new company was officially the largest gaming firm in South America. Before the merger, Dream SA had six casinos in Chile and four in Peru. While this merger was taking place, Sun International’s 2016 annual report shows that the Ocean Sun in Panama and the Nao Casino in Colombia continued to underperform.

The 2017 annual report shows that a decision had been made to scale back the Ocean Sun and close the Nao Casino.

But Sun International was not deterred. In April 2018, it acquired Thunderbird Resorts in Peru for R317 million, and in May 2018, it upped its stake in Sun Dreams SA by 10% for R832 million, becoming a 65% shareholder.

Then in July 2018, Sun Dream SA was struck a blow when it was informed that of the five casino licences it had applied for in Chile, it would only receive the one for its R731 million casino and hotel project in Iquique.

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A month later, Sun International was on the acquisition trail again, purchasing the Park Hyatt Hotel and Casino in Mendoza, Argentina, for R333 million.

But in August this year, Sun International announced it had made the “difficult decision” to sell out of Sun Dreams SA, offloading its 65% share to Chilean company Nueva Inversiones Pacifico Sur Limitada for R2.76 billion.

The proceeds from the deal will be used to settle Sun International’s offshore debt in South America of R661 million. The balance will be repatriated to South Africa.

“Our failures and successes in Latin America have had nothing to do with the restructure required in South Africa. The restructure is a result of an element of overstaffing that existed prior to Covid-19, but it is predominantly as a result of the Covid-19 pandemic,” said Leeming.

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