Codere may sell Uruguay assets on weak Argentine hand

Codere may sell Uruguay assets on weak Argentine hand

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Spanish gaming company Grupo Codere may shuffle the cards in Latin America by selling assets in Uruguay to help counterbalance the sharp currency depreciation in Argentina, one of its biggest markets, because it is cutting into overall revenue, according to one source and information provided by the company. 

The company said it is considering a possible joint venture with a competitor in the region or selling a minority stake in the business in Uruguay, adding that it “permanently maintains conversations with potential partners in order to promote and fulfill its strategic and financial objectives.”

The company, however, declined to name any of the companies it could be in talks with in a September 30 filing with the Madrid Stock Exchange. Codere's share prices has been hovering in a tight trading band between 3 and 4 since February, However, over the past 12 months, the shares are down 54 percent.

Spanish newspaper El Confidencial reported that Sun Dreams, Chile's biggest gaming company, could be interested in buying a 50% stake in the Uruguayan operation at more than 150m euros ($165m), citing unnamed people close to the proposal.

Sun Dreams declined to comment when asked for further information, and Codere did not return phone calls for comment.

Federico Mac Dougall, a business professor at the University of Belgrano in Buenos Aires who is familiar with Codere’s business, said the deal would make sense.

By selling assets in Uruguay, Codere would gain liquidity while keeping its business intact in Argentina, traditionally one of the most lucrative in a portfolio that also includes Colombia, Italy, Mexico, Panama and Spain. “They will want to sell assets that are not strategic so they can hold onto Argentina,” he told LatinFinance.

It would also be hard to sell the business in Argentina because of capital controls that the government implemented in August after a run on the peso swelled concerns of that further depreciation could drain central bank reserves.

There is also a lot of uncertainty in the run-up to an October 27 presidential election, which is expected to bring back the left-leaning political party that ran Argentina from 2003 to 2015, including with the use of capital, currency, price and trade controls.  The result has be a plunge in merger and acquisition activity, Mac Dougall said.

“Nobody wants to bring dollars into Argentina because you don’t know if you are going to be able to take them out again,” he said. “The only inflows are being made by companies that desperately need funds, not for new business.

And even if a new business venture is expected to be profitable, you don’t know if you are going to be able to take out the dollars or not.”

For Codere, this means its business in Argentina could continue to weigh on its overall performance, given that economists are warning of a longer-than-expected recession, high inflation and exchange rate volatility.

Indeed, Codere said in its latest earnings release that its global revenue dropped 6.2% to €712.4m in the first half of 2019 on the year, as a sharp devaluation of the Argentine peso slashed revenue in euro-terms by more than 30% from its operations in Argentina. This offset growth in Mexico, Spain, Uruguay and its online gaming business.

Codere said it plans to continue to reduce its exposure to Argentina by diversifying its business in other markets, with Mexico and Italy now surpassing Argentina as its biggest markets in terms of revenue, company data show. While Argentina accounted for 29% of its total revenue in the second quarter of 2018, that has dropped to 23%, while both Mexico and Italy have grown from 21% and 22%, respectively, to 24% each, the data show.  Codere holds approximately $848 million worth of debt on its books that matures in 2021, made up of euros and US dollars, according to data provider Refinitiv. 

Edison Investment Research, a London-based research firm, said in a September 19 report on Codere that it expects the company’s adjusted EBITDA in Argentina to decline to €60m in 2020 from €146.1m in 2015, while Mexico should rise to €173.7m from €91.5m over the same period.

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