The risk of a prolonged global slowdown in VIP gambling activity could be an obstacle for Crown Resorts Ltd’s expansion plans, says a new note from Credit Suisse in Australia.
The casino operator, chaired by billionaire James Packer, on Friday said it has committed to an initial investment of AUD50 million (US$41.1 million) to develop – in partnership with the Schiavello Group – a new luxury five-star hotel and apartment complex located opposite to Crown Melbourne casino resort (pictured).
Crown will have the right to “acquire and manage the hotel on completion,” the casino operator said in a filing to the Australian Securities Exchange. “It is not intended that any gaming operations will be conducted in the new building,” it added.
The firm said that Crown Melbourne’s three hotels have an occupancy rate “consistently over 90 percent”.
“A new luxury Crown-managed hotel will assist Melbourne to attract more high net-worth tourists and reinforce Melbourne’s appeal as a destination for important international conferences, sporting and cultural events,” Mr Packer said in the filing.
Credit Suisse however questions the ability of Crown to finance the construction of new projects in Australia, Macau and Las Vegas. Crown holds a 33.6 percent equity interest in Macau-based casino operator Melco Crown Entertainment Ltd.
The note from the investment bank said the ongoing slump in VIP gambling in Macau and other jurisdictions raised a number of questions about the sustainability of the high-roller segment in Australia.
“There is, of course, Macau and the Australian VIP revenue streams, but there is also the planned Vegas casino and the planned Sydney casino. Both of these ventures are expected to be very dependent upon VIP patronage,” said the note, quoted by Australian media.
Mr Packer in October sounded a note of caution about Macau, saying “trading in Macau has been difficult, negatively impacted by regulatory changes around smoking and the [Chinese] government crackdown on corruption in China”.
Melco Crown has provided the Australian company with solid earnings.
Crown’s development commitments spread across Australia, Asia and the United States. Crown has ambitions to move into Las Vegas, where it acquired a site in August and plans to invest about US$1.9 billion in a new casino resort.
In Australia, Crown is part-way through constructing a new hotel at its Perth casino. It has also committed to building an AUD1.5 billion casino at Sydney’s Barangaroo waterfront development precinct.
The company has also entered a tender for a second casino in Brisbane, in partnership with Chinese property developer Greenland Holding Group Co Ltd.
This is in addition to the expansion plans of Melco Crown. The Hong Kong-listed company is expanding the City of Dreams casino resort in Cotai and building Studio City, due to open in mid-2015.
Melco Crown is also a partner in City of Dreams Manila, a project that had a soft opening on Sunday.
The Credit Suisse note said cashflow from the Australian casinos and Melco Crown dividends give Crown access to AUD2.7 billion in on-balance funding capacity out to 2020.
“This financial resource must fund the Sydney construction, Melbourne and Perth hotel towers, and any potential equity that might be called for the Brisbane or Vegas projects,” the investment bank said.
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China