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Greece – Queenco losing grip on properties and licences

By - 25 June 2014

A report, issued at the end of May, has cast doubts on Queenco Leisure’s ability to continue as a going concern and with its licences in Greece in jeopardy, its European properties for sale and a lack of cash flow to invest in its Cambodia operations, the company is facing enormous challenges.

The report states that during the three month period ended March 31, 2014, Queenco Leisure International incurred a net loss of €3.6m and a negative cash flow from operations of €0.2m. As of that date, the company’s current liabilities exceeded its current assets by €16.5m. These matters and others raise substantial doubt about the company’s ability to continue as a going concern.

The Company’s main activity is investment, through Israeli and foreign companies, in tourist projects, including casinos and hotels, currently in Greece and Cambodia. The activities in Greece are in the Rhodes Island, and the activities in Cambodia are in the city of Sihanounkville. The company provides advisory services to its activities in Rhodes and Cambodia. The company also has direct and indirect interests in Club Hotel Loutraki, S.A., which operates a casino in Loutraki, Greece and a casino in Belgrade, Serbia; however, the company currently does not attribute any economic value to these casinos.

Listing Queenco’s various projects and joint ventures in Europe and South East Asia, the report shows there are substantial doubts as to the ability of Queenco’s project in Cambodia to continue its operations as a going concern. In addition, the Group is continuing its efforts to realise excess assets, such as the planned sale of real estate in Bulgaria (which is not in use by the Group) and nine Hectares of land in Cambodia. Although the company would like to develop a new tourist project on the land, due to the company’s cash flow distress, it may need to sell.

The sale of Queenco’s Prague operations in late 2013 and its bid to sell assets in Bulgaria are in line with a strategy to move away from Europe and to continue to explore opportunities in South East Asia and online gaming.

During 2012, Casino Rhodes did not comply with its ongoing obligations to pay revenue tax and national security taxes, but has agreed with the tax authorities on a payment plan concerning these amounts (€1.2m), and has recently also agreed with the tax authorities on an additional payment plan concerning its on-going payment obligations for the first quarter of 2014 in amount of €1.3m. However, non-compliance with on-going tax obligations could lead to the termination of the license.

Neither Casino Rhodes nor the Queenco Group have the financial means to pay such amounts and Casino Rhodes is expected to struggle to meets its operating obligations, though Queenco has provided guarantees for the repayment of a loan extended to Casino Rhodes by a banking corporation, which as of 31 March 2014 amounts to approximately €5.8m.

The troubles mentioned are, however, comparatively small in relation to the state of Casino Hotel Loutraki’s finances. On 16 October 2013, the joint venture principally held by CHL and operating Casino Loutraki (the JV), filed a petition with the court to allow the JV to reach a settlement with its creditors; however, objections to the petition were filed with the court, among others who objected were the Municipality of Loutraki and the Ministry of Finance of Greece. The casino is covered by Article 106 of Greece’s Bankruptcy Code, currently owing €40m euros to the State, and continuing to owe €800,000 to the state each month.

Crippled by a employee strike since the beginning of May, having asked its employees to swallow an additional wage reduction of 24.5 per cent, having already reduced salaries by 22.2 per cent over the last two years, the CHL has been unable to operate. The current strike involves over 95 per cent of the 1,400 workers at the location.

Recently, the Greek court has approved the JV’s proposed settlement with its creditors. To the Company’s knowledge, the Settlement relates to the debt existing on the date of filing the petition, and provides that most of the debt will be paid over a period of approximately seven years, without interest or penalty.

However, the JV has incurred further substantial debts following the filing of the petition. On 6 November 2013, the Greek Gaming Committee for the Supervision and Audit of Games (the “Gamming Committee”) invited the JV for a hearing to answer claims that it has allegedly breached Casino Loutraki’s license terms due to its failure to transfer certain payments to the Greek authorities (which may result in the evocation of the licence).

On 20 May 2014, the Gaming Committee informed the JV that it must immediately pay its entire debts to the Greek authorities – substantial monetary obligations incurred between 1 August 2013
and 30 April 2014, and which are not included as part of the Settlement; and must present evidence concerning its actions to meet the requirement. On 29 may 2014 the JV reached a settlement concerning the obligations incurred between 1 August 2013 and 30 April 2014, paid the first instalment and presented the required evidence.

However, the Gaming Committee is expected to reconvene in order to resolve this matter and Queenco is unable to estimate if and to what extent the Committee’s decision might affect the license granted to the JV for the operations of Casino Loutraki.

A statement from Queenco noted that it believed part of the woes affecting Casino Hotel Loutraki should be laid at the door of its partners in the project, stating: “The Group’s activities are adversely affected by the global economic crisis in general and the economic crisis in Greece in particular. The above mentioned, along with the Company’s inability to exercise its rights in Club Hotel Loutraki S.A. (“CHL”) due to disagreements with B.A.T (Management) 2004 Ltd. (of the Club Hotel Group) (“B.A.T.”) regarding the control of CHL and Casino Austria International Holding GmbH’s (“CAIH”) unwillingness to comply with its contractual obligations to transfer €49.5m to Powerbrook Spain S.L (PBS), have brought the Company to operating losses of approximately €3.6m and €19.9m for the three month ended 31 March 2014 and the year ended December 31, 2013, respectively, and to negative operating cash flows from its continued operations of approximately €0.5m for the three month ended 31 March 2014. The Company’s net negative working capital amounted to approximately € 14.1 million on 31 March 2014.”

In late April 2014, the board of directors of PBS, authorised Mr. Yigal Zilkha, the Company’s Chairman (as the Company’s representative), and a representative of the Club Hotel group, to negotiate with the minority shareholder of CHL (the “Investor”) an investment in CHL by the Investor. Accordingly, the parties are currently negotiating the terms of such a transaction, which is expected to result in a substantial dilution of the Company’s holdings in CHL and the transfer of control in CHL to the investor.

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