GGRAsia – Packer says respectful of China process re Crown arrests

Packer says respectful of China process re Crown arrests

Oct 18, 2016 Newsdesk Latest News, Macau, Rest of Asia, Top of the deck, World

James Packer (pictured), the largest shareholder in Australian casino operator Crown Resorts Ltd, said in a statement he was “respectful” toward China’s investigative processes regarding his 18 staff members reportedly held by authorities there on Thursday and Friday.

“I am respectful, that these detentions have occurred in another country and are therefore subject to their sovereign rules and investigative processes,” Mr Packer said, as quoted by the Associated Press.

Mr Packer added: “As the major shareholder of Crown Resorts, I am deeply concerned for the welfare of those Crown Resorts employees detained in China.

“I have sought regular updates on this issue and have asked Crown Resorts to do everything possible to contact our employees and to support their families, as we await further details from Chinese authorities,” the entrepreneur added.

Crown Resorts shares had fallen 14 percent to AUD11.15 (US$8.55) on Monday following news of the arrests. Several Australian media outlets reported the stock price fall slashed approximately AUD630 million from Mr Packer’s net worth.

Crown Resorts is an approximately 27-percent shareholder of Macau-based casino operator Melco Crown Entertainment Ltd.

Several commentators also said there was investor concern about the business prospects for Crown Resorts’ AUD2-billion Crown Sydney project, which is in the early stages of development at Barangaroo, and has been conceived as aimed at high rollers, including Chinese players.

But a note on Monday from analysts Nick Markiewicz and Alexandra Thrum of Morgan Stanley Australia Ltd said the “Australian VIP bear case” was “already priced in” to the company’s stocks.

Morgan Stanley group said in another note the same day: “South Korean casinos offer the closest precedent, with 13 South Korean and 34 Chinese nationals arrested under similar circumstances in June 2015. VIP revenue year-on-year growth slowed down by 22 percentage points between first quarter 2015 and third quarter 2015, and price to earnings multiples declined from 24x to 18x as well.”

Possible outcomes

The institution also gave some commentary on the fate of the people caught up in the sweep relating to South Korean casinos.

“They were found guilty of ‘promoting casino/gambling tours’ but not credit offering. Three Grand Korea Leisure Ltd staff were released in August 2016 and the remaining four today [October 17, 2016]. Four Paradise [Co Ltd] staff were released in August 2016 and the remaining two today,” said Morgan Stanley.

Multiple Australian media outlets reported that – were the Crown Resorts employees recently detained to be accused and found guilty of soliciting Chinese high rollers to gamble in overseas casinos – they could each face a jail sentence of up to 10 years.

The head of Crown Resorts’ VIP international team, Jason O’Connor, is believed to be one of 18 Crown employees being questioned by Chinese authorities, the company had said in a Monday statement to the Australian Securities Exchange.

China’s Ministry of Foreign Affairs said during one of its regular briefings for the media that some Australians had been detained in Shanghai for suspected involvement in gambling crimes, but did not provide further details.

Christopher Jones of the Buckingham Research Group Inc said in a Tuesday note that “market conjecture” suggested the 18 were detained in a “coordinated multi-city sting operation”.

He added: “We don’t view this as a reacceleration of efforts by the Chinese government to crack down on casinos or the Chinese gamblers that visit them. Rather, we see it as business as usual, with the Chinese government continuing to remain vigilant as it relates to its efforts to enforce rules and policies around casino marketing in the People’s Republic of China.”

JP Morgan Securities (Asia Pacific) Ltd analysts DS Kim and Daisy Lu stated on Monday: “It’s interesting to note that the crackdown so far has been limited to ‘foreign’ casinos while there haven’t been any cases involving Macau casinos (which are, effectively, ‘local’).”

The pair added: “Indeed, recall that the China government announced in late 2014 and early 2015 that it would crack down on ‘foreign’ casinos setting up offices to attract Chinese gamblers and fight against ‘overseas’ gambling-related crimes. Thus, we cautiously view that the government may be mainly targeting non-Chinese casinos’ efforts to attract Chinese gamblers which, in turn, could leave junkets or Macau casinos largely unaffected.”

Union Gaming Securities Asia Ltd said in a Monday note that arrests in mainland China of casino marketing agents were more commonplace than many people realised, but often went unreported.

“We understand there have been many more arrests over the years that didn’t make the news,” said analyst Grant Govertsen.

“While we would expect Crown Resorts [to] reassess its China marketing strategy, we don’t think this incident has negative implications for the Macau operators (yet). Based on what we’ve learned so far the Crown Resorts arrests do not seem to represent a new tactic on Beijing’s part.”

Morgan Stanley group ventured to say the latest incident might be beneficial for junket agents – that traditionally handle the relationships with VIP players in mainland China, a place where gambling debts are not legally enforceable – and for Macau.

“The recent detaining of overseas casino marketing staff could push casinos to rely on junkets – against using direct route to grow their VIP business – which could compress margin in the medium term. This could also ebb aggressive VIP growth seen in regional casinos at the expense of Macau,” said Morgan Stanley.