Moody’s Investors Service has stated that plans by James Packer’s casino firm Crown Resorts Ltd to put most of its business interests located outside Australia into a new listed vehicle are likely to hurt the credit profile of Crown Resorts.
The credit ratings agency warned in a Thursday note that – following the planned demerger – Crown Resorts’ stake in Melco Crown Entertainment Ltd would “no longer be available as a source of alternate liquidity” for the Australian firm.
Melco Crown is also known by its Nasdaq stock ticker name MPEL. The firm operates casinos in Macau and in the Philippines. Last October, it opened the Studio City casino resort (pictured), in Macau’s Cotai district.
Moody’s added that it had placed Crown Resorts’ ratings on review for downgrade following the demerger announcement.
Under the demerger proposal, Crown Resorts’ stake in Melco Crown would go into a new international holding company, along with Crown Resorts’ investment in Las Vegas casino and hotel Alon which is under development; its 20 percent holding in the the international restaurant and hotel company Nobu Hospitality LLC; its 50 percent stake in U.K. regional casino operator Aspers Group Ltd; and its stake in Caesars Growth Partners LLC.
“The proposed demerger of international assets, and increased dividend payout will result in a decline in Crown Resorts’ retained cash flow, and materially reduce its asset base,” Matthew Moore, a Moody’s vice president and senior credit officer, noted in a statement.
As part of its demerger plans, Crown Resorts also proposed a new dividend policy which would pay out 100 percent of normalised net profit after tax.
“The reduction in retained cash flow arising from Crown Resorts’ increased dividend payout and the cessation of dividends from Melco Crown will mean that Crown Resorts will have less capacity to contribute to the capital cost of the AUD2-billion [US$1.48 billion] Crown Sydney project, from internally generated funds,” added Mr Moore.
Crown Sydney, a project in Australia’s largest city, is scheduled to open in 2020. It will be Sydney’s second casino.
In its Thursday note, Moody’s also pointed out that a demerger would result in Crown Resorts’ asset base “falling materially”, because it would lose its approximately 27.4-percent interest in Melco Crown. Moody’s valued the stake at AUD2.7 billion.
The credit ratings agency further stated that while the outlook for dividends from Melco Crown “is subdued – in view of the downturn for the gaming industry in Macau – Crown Resorts’ stake in Melco Crown provides an alternate source of liquidity, as demonstrated by Crown Resorts’ sale in May 2016 of part of its shareholding in Melco Crown.”
At the time, Crown Resorts reduced its ownership to 27.4 percent from 34.3 percent, raising about US$800 million in cash. According to Moody’s, that helped Crown Resorts to reduce its debt in the short term.
In a note issued on Wednesday, brokerage Wells Fargo Securities LLC had stated it expected the demerger announced by Crown Resorts to have “little impact” on Melco Crown. Analysts Cameron McKnight, Robert Shore and Daniel Adam added: “We don’t see this as a move for Crown Resorts to sell down its Melco Crown stake, and likely [it] has more to do with separating Crown Resorts’ very stable, mature domestic assets from more volatile Asian markets and international development projects.”
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