China slowdown risks thinning Packer Vegas takers: CS
China’s economic slowdown “may have diminished investor interest” in Alon Las Vegas, said a report on Tuesday from Credit Suisse AG. Alon, a casino hotel project led by Australian businessman James Packer and former Wynn Resorts Ltd executive Andrew Pascal, is planned for a site at the northern end of the Las Vegas Strip.
Mr Packer is an executive director of Australia-based Crown Resorts Ltd, an investor in the Asian casino developer Melco Crown Entertainment Ltd. He also serves as co-chairman of Melco Crown.
Several new or revived casino schemes for the Las Vegas Strip have been described in media reports as seeking to attract Chinese and other Asian gamblers.
“The risk to a Crown equity raising has increased,” said Credit Suisse analysts Larry Gandler and Ben Levin in their report, referring in part to the cash that Crown Resorts would need to find to pursue Alon.
“We link [equity raising risk to] the recent 3 percent increase of Consolidated Press Holdings [Ltd’s share] of Crown to 53.1 percent and an equity sell down of Crown’s Las Vegas entity, Alon, that seems to be taking longer than we thought. The China economic slowdown may have diminished investor interest in Alon,” added the Credit Suisse team.
Consolidated Press Holdings is a Sydney, Australia-based investment holding company incorporated in 1954 and founded by Mr Packer’s father Kerry Packer.
A note from JP Morgan Securities Australia Ltd in October said it expected Alon Las Vegas would require AUD1 billion (US$711.6 million) in equity from Crown Resorts under the project’s current ownership structure.
Crown Resorts has indicated that the Alon project could have a total cost of US$1.6 billion to US$1.9 billion. Taking into consideration additional working capital for the casino scheme, Credit Suisse said it expects the project to be at “the higher end of the cost estimate”.
“Supposing Crown can raise US$300 million of equity to fund Alon – a potentially US$1.9-billion casino project – would mean Crown would just breach its leverage ratio target,” stated the Credit Suisse analysts on Tuesday.
They added that Crown Resorts needed to keep consolidated group leverage below 2.5 times debt-to-earnings before interest, taxation, depreciation and amortisation (EBITDA) in order to retain its BBB ‘stable’ credit rating.
Credit Suisse said it had included Crown Resorts’ recent announcement – that it was acquiring a 20-percent stake in restaurant and hotel company Nobu Hospitality LLC for US$100 million – in the bank’s leveraging model for Crown Resorts.
Full balance sheet
JP Morgan had said in an October 21 note that Crown Resorts’ balance sheet was currently “full” due to a pipeline of new casino projects: Crown Sydney; an extension at Crown Melbourne; and the plans for investment in a Las Vegas resort.
Crown Resorts also has a venture with Hong Kong-listed Melco International Development Ltd to develop casinos in Asia via Nasdaq-listed Melco Crown. Mr Packer attended on October 27 the opening of the US$3.2-billion Studio City gaming resort in Macau, a property 60-percent owned by Melco Crown.
Credit Suisse noted on Tuesday: “Given prevalent risks around Macau EBITDA, [the] Crown Sydney budget, Las Vegas budget and Australia VIP [gambling] revenue, it might be prudent for Crown to raise equity and protect its credit rating. Crown can issue AUD430 million of new equity without diluting Consolidated Press Holdings below 50.1 percent. In December 2008, Crown issued AUD300 million of new equity to shore up its credit rating.”
In mid-November Vegasinc.com, an online media outlet linked to the Las Vegas Sun newspaper, reported that work crews were at the Alon Las Vegas site.
Documents lodged with the Clark County Planning Department earlier this year show the hotel will have 1,100 rooms. According to the documents – cited by Credit Suisse – the gaming floor at the property is proposed at 27,776 square feet (2,580 sq metres).
“By our estimates, this gaming floor and associated salons could hold about 600 slot machines and about 150 tables,” said Mr Gandler and Mr Levin.
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