Fitch Ratings Inc has affirmed Australia-based gaming operator Crown Resorts Ltd’s long-term foreign currency Issuer Default Rating (IDR) and senior unsecured rating at ‘BBB’. The rating indicates low expectation of default risk. The research house added that the outlook for the firm is stable.
Fitch said the firm’s existing Australian casino resorts – Crown Melbourne (pictured) and Crown Perth – “have a long history of stable cash generation and resilient performance during economic downturns,” from what the ratings agency termed “stable and predictable local markets”.
The firm was also, said Fitch, in the process of making substantial expansions and upgrades to existing facilities. All those factors reflected “Crown’s position as the sole licensed casino operator in the respective regions,” it added.
In August 2014, Crown’s chairman James Packer said the firm had committed to spending AUD1.7 billion (US$1.3 billion) on upgrades to Crown Melbourne alone over a 10-year period to 2016.
Fitch stated in its report on Tuesday that Crown’s Macau-based associate, Melco Crown Entertainment Ltd had made a dividend payment on its 2013 net income in the first half of 2014. “This dividend inflow is likely to be sustained and will enhance Crown’s ability to finance a greater portion of its sizeable capex [capital expenditure] through cash, moderating its financial leverage,” explained Fitch.
The ratings agency however said it expects Melco Crown’s dividends to decline this year, “following the decline in gross gaming revenues and profitability of its flagship Macau property”.
Fitch added that Crown has a significant capital expenditure commitment in financial years 2015 to 2018 of nearly AUD2.4 billion, excluding the licence payments to the Victorian government following the extension of the licence to operate in Melbourne.
In Australia, Crown is building a new hotel at its Perth casino resort, with targeted completion by December 2016. It has also committed to building an AUD1.5 billion casino at Barangaroo, a regeneration zone on Sydney’s waterfront.
Fitch said it expects Crown to maintain its current trend of generating operating cash flows “of at least AUD650 million a year,” but warned of a sluggish macro economy in Australia including weaker consumer sentiment in Melbourne and Perth.
“These factors would translate into flat to sluggish growth in mass market revenues,” the ratings house added. “VIP revenues, which are driven by the inbound tourist traffic, are likely to be affected by a decline in Chinese tourist arrivals,” it stated.
Fitch also said that Crown’s planned subordinated notes are eligible for 50 percent equity credit. The casino operator is seeking to raise AUD400 million to finance new projects.
“Features supporting the equity categorisation include their junior subordination priority, option to defer interest payments on a cumulative basis, 60-year maturity, and Crown’s intention for hybrid capital to form part of the capital structure,” Fitch said.
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"The MSAR [Macau Special Administrative Region] Government is always maintaining its policy not to have imported labour to work as dealers. This position has not changed"
Lionel Leong Vai Tac
Macau’s Secretary for Economy and Finance