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.
Crown is a joint venture partner in the Macau and Philippines casino operator Melco Crown Entertainment Ltd. Its latest joint venture property, City of Dreams Manila, opened on December 14. Studio City, a Macau casino project 60 percent held by Melco Crown, is due to open next year. Crown is also independently pursuing projects in Las Vegas and Sri Lanka.
Fitch said Crown’s domestic casino assets – Crown Melbourne (pictured) and Crown Perth – “continue to deliver solid and relatively defensive earnings”. The ratings house added that while these assets continue to drive Crown’s robust operating cash flows, its Macau-based associate, Melco Crown Entertainment Limited had made a dividend payment on its 2013 net income in the first half of 2014.
Melco Crown, in which Crown has a 33.6 percent stake, declared AUD316.69 million (US$260.68 million) of dividends on 2013 net income. It was the first time in three years that Melco Crown had paid a dividend said Fitch. Crown’s portion was valued at AUD94.4 million.
“This dividend inflow is likely to be sustained and will enhance Crown’s ability to finance a greater proportion of its sizeable capex through cash and moderate its financial leverage,” stated Fitch.
But it added that the opportunity currently for actually reducing leveraging seemed slim. Crown’s planned capital expenditure for financial year 2015 through to financial year 2018 amounts to AUD2.39 billion – excluding payments to the Victorian state government made in exchange for longer term certainty on its Melbourne casino rights – said the ratings agency.
“AUD1.1 billion is to be incurred on the refurbishment and upgrade of its Melbourne and Perth properties and AUD1.3 billion on its new property at Sydney,” stated Fitch. Crown has also bid to develop a new casino in Brisbane – known as the Queen’s Wharf Brisbane project – in partnership with Chinese property developer Greenland Holding Group Co Ltd.
Fitch additionally counselled there was added risk in entering other markets where Crown currently has no or little experience of operations.
“Crown would be required to make additional investments (over and above its sizeable planned capex) should the Las Vegas and Sri Lankan projects proceed. Given that the geography of these projects is outside Crown’s traditional spheres of operation, the company would also be exposed to an element of project execution risk,” stated Fitch.
Crown ended earlier plans for a Crown Las Vegas resort in 2007. Two years later it terminated – amid the global financial crisis – a US$1.8 billion deal to purchase Cannery Casino Resorts LLC.
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"If the [Macau casino] concessions are put up for bid, there will also be a lot of giant Chinese companies, some having nothing to do with gaming, which would like to take over these enormously successful casinos”
Professor emeritus at Whittier Law School in California, in the United States, and a visiting professor at University of Macau