New control at Crown Resorts could stem troubles says Fitch
Fitch Ratings Inc says an offer by private equity management firm Blackstone Group Inc to acquire all the shares in Australian casino operator Crown Resorts Ltd, “could help” Crown Resorts to “meet the requirements set by regulators to proceed with its Sydney casino,” at Barangaroo in New South Wales, as it would end the firm’s relationship with Consolidated Press Holdings Pty Ltd.
Consolidated Press holds James Packer’s stake in Crown Resorts – currently the largest single interest in the casino firm – amounting to 36 percent.
The ratings house suggested that an offer “similar” to Blackstone’s but from another party, could also “aid Crown’s remediation”.
But Fitch added that two other state-level Australian regulatory probes into the casino operator “loom large”. In Australia, casino regulation is done at state rather than federal level.
The ratings institution in November assigned a “rating watch negative” assessment to its ‘BBB’ rating, for Crown Resorts, “to reflect the various regulatory risks facing the company”.
BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, under that rating, but “adverse business or economic conditions are more likely to impair this capacity”.
Crown Resorts said in a Monday filing to the Australian Securities Exchange it had received on Sunday “an unsolicited, non-binding and indicative proposal” from Blackstone that valued the casino group at circa AUD8.02 billion (US$6.10 billion at current exchange rates).
Fitch said in its Tuesday memo, that a Crown Resorts’ management operating under Consolidated Press’s watch, had been “identified as a source of significant corporate governance lapses” by a report issued in February by a regulatory inquiry in New South Wales.
The probe – commissioned by the state’s Independent Liquor and Gaming Authority (ILGA) – found that Crown Resorts was unsuitable to operate a casino it had intended for a new Sydney hotel and real estate development at Barangaroo, Sydney.
The first of 19 recommendations mentioned in the inquiry’s report, was that the state’s Casino Control Act needed a fundamental change. This was that it should be amended “to include an additional object of: ensuring that all licensed casinos prevent any money laundering activities within their casino operations”.
One of the outstanding regulatory probes is a Royal Commission in Victoria, where Crown Resorts runs Crown Melbourne (pictured), started on Wednesday. The other one is a Royal Commission in Western Australia, where the gaming brand runs Crown Perth.
“It remains crucial that the company continues its remediation process to address all the regulators’ concerns, particularly amid Royal Commissions in its two main operating jurisdictions,” stated Fitch.
“The Victorian regulator has set 1 August 2021 to report its findings, which could have an impact on Blackstone’s or other offers,” added the ratings agency.
According to Fitch, were Blackstone’s proposal to proceed, Blackstone would be “subject to lengthy probity and other regulatory checks,” and it would have to be “deemed suitable to operate casinos by three different regulators.”
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