Disney pays the price for HK losses
Theme park's owners to forgo fees, repay loan early in hope of new cash
The Walt Disney Company has entered into new financing arrangements with major creditors of the city's theme park, admitting losses are growing and the park's performance is not as good as expected.
The theme park will repay HK$2.32 billion of bank loans in the next 12 months, instead of over 15 years as planned, and conditions attached to the debt have been lifted. Disney will also temporarily forgo the management fees and royalty payments it receives from the two-year-old theme park, as requested by the government.
Improving the park's balance sheet is crucial as it is required to fund new attractions, which can help boost attendance, with its own operating income. However, the lower-than-expected attendance hurts revenue, which limits funding for new attractions and in turn leads to fewer visitors. The park's first-year attendance of 5.2 million fell short of its 5.6 million target, while the second-year attendance is believed to be about 4 million.
The government, which previously stated the park would not get further taxpayer funds, has said it is now weighing financing options.
'The government notices that there is a need for Hong Kong Disneyland to continue to increase its in-park attractions in order to attract more new and repeat visitors,' a spokesman said. 'The government is prepared to discuss with The Walt Disney Company about the expansion plan of the park, including the financial arrangements.'
Tom Staggs, Disney's senior executive vice-president and chief financial officer, said: 'Hong Kong Disneyland has been less successful initially than we'd hoped. However, we continue to believe in the potential of this property and we anticipate additional investment in the park to help drive its success.'
Mr Staggs was speaking to analysts in the US yesterday following Disney's results announcement.
He said removal of the debt covenants 'makes room to focus on driving greater attendance to the park and operating the park without worrying' about the covenants.
Disney did not reveal how much money the Hong Kong park has lost, saying only that the increased minority interest expense in the latest quarter reflected 'the impact of increased losses at Hong Kong Disneyland'.
City University economics professor Charles Li Kui-wai said he believed the lenders were more cautious about the haemorrhaging park and were calling in the debt to get Disney to be more serious about boosting the park's business.
He said the call for additional investment might be Disney's strategy to get the government to plug the budgetary black hole. 'It might be Disney being a cry baby to see if someone will come to their rescue.'
The government is a joint venture partner in the theme park with Disney. The government, which has a 57 per cent stake, has invested about HK$23 billion in the park.
Under the new arrangement with lenders, the debt is now due in one year, the covenants are removed and an existing revolving credit facility becomes available. The original funding arrangement for the park consisted of a HK$2.32 billion term loan and a HK$1 billion revolving credit facility. Both carried a 15-year tenure. But Liberal Party chief James Tien Pei-chun said future funding should depend on what the root cause of the park's misfortune is.
Disney's parks and resorts business reported an 11 per cent rise in operating income for the year ended September 29 to US$1.71 billion.