The reduction by Australian casino firm Crown Resorts Ltd of its stake in Asian casino operator Melco Crown Entertainment Ltd is “timely”, said Fitch Ratings Inc.
Crown Resorts’ wholly owned unit Crown Asia Investments Pty Ltd is cutting its stake in Melco Crown to 27.4 percent, from approximately 34.3 percent, it was announced last week. Crown Asia will do so by allowing Melco Crown to repurchase from it 155,000,000 ordinary shares, in a deal worth around US$800.84 million.
Australian entrepreneur James Packer controls Crown Resorts.
Following the share repurchase, Hong Kong-listed Melco International Development Ltd – headed by Lawrence Ho Yau Lung – will become Melco Crown’s single largest shareholder, with a total holding of 37.9 percent. Mr Ho is chief executive of Melco Crown.
“Crown [Resorts]’s dilution of its stake in Melco Crown is timely due to the challenging conditions in Macau and the potential cannibalisation by new resorts,” Fitch said in a Friday release.
Casino gaming revenue in Macau has fallen year-on-year for 23 months in a row, linked – say a number of investment analysts – to factors including China’s anti-graft campaign and the softening mainland economy.
Several Melco Crown rival casino operators have resort launches due in Macau’s Cotai district in the next 12 months. Projects include: Wynn Palace; the Parisian Macao; and MGM Cotai. Each is likely to receive 250 new-to-market live gaming tables from the Macau government, according to several investment analysts covering the gaming sector.
The new openings, stated Fitch, “could result in Melco Crown’s Studio City losing market share”.
Studio City (pictured), located on Cotai, is 60-percent owned by Melco Crown, and began operations last October. Business at the property has been underperforming, according to several investment analysts.
Melco Crown’s Mr Ho admitted last week that Studio City was still not meeting its full potential. “Right now, [Studio City] is on the southern tip of the [Cotai] strip… on an island of its own, and I think that is affecting ramp up,” he said during a conference call with investment analysts.
“At the same time, we are not totally happy with our own efforts. There is a lot of marketing effort to do,” Mr Ho added at the time.
According to an April note by U.S.-based brokerage Sterne Agee CRT, ongoing construction work around the perimeter of Studio City is negatively affecting the property’s ability to ramp up its business.
In its Friday note, Fitch said the partial sale of the Melco Crown stake would allow Crown Resorts “to deleverage and thus enhance its ability to execute its sizable expansion plans.”
Crown Resorts has a significant project pipeline for the next five years. Projects include: Crown Sydney; Crown Towers Perth; an extension at Crown Melbourne; and plans for investment in a Las Vegas resort.
Fitch stated it made sense for Crown Resorts to still maintain “a significant stake” in Melco Crown after the partial stake: it added “an element of geographic diversity” to the firm’s portfolio, mostly focused on Australia, the credit ratings agency stated.
