A $73 million payday for Packer but JobKeeper for Crown staff

What must Scott Morrison and Josh Frydenberg be thinking about Crown Resorts' announcement yesterday that it will be accessing the government’s JobKeeper support for some of the 11,500 staff it has stood down, while it rewards shareholders with $205 million in dividends.

James Packer stands to receive $73 million of this largesse in what can only be described as an eye-popping capital management strategy. Meanwhile, Crown’s other major shareholder, Asian casino mogul, Lawrence Ho will receive a handy $20 million payday treat.

So much for everyone sharing the pain.

Not only is the taxpayer (via Jobkeeper) picking up part of the staff tab for Crown’s temporary closure of its gaming facilities, the company is also bolstering its liquidity position by securing an additional $1 billion in debt facilities. So the banks have come to the party as well.

Crown already has $500 million cash and said the extra liquidity was needed to see it through the period where its operations were essentially closed.

The liquidity buffer is not only prudent but it allows the company to continue work on its Barangaroo project in Sydney - due for completion at the end of this calendar year.

Crown’s revenue has slowed to a trickle but its hotels remain open and are being used to accommodate those under quarantine for two weeks after returning from offshore. This accommodation is being paid for by state governments. And sure Crown is receiving nothing like its normal rack rate but it allows some staff to be retained.

Payday for James Packer and Lawrence Ho.

Unlike Packer, who is neither an executive or director, Crown’s senior management is feeling the pinch, with chief executive Ken Barton, senior executives and directors taking a 20 per cent pay cut.

While most operations are closed, Crown told investors yesterday it is still burning through between $20 million and $30 million per month so it has a fairly long liquidity runway. Having said that Barton told investors that staff, most of which were given two weeks pay, could punch a hole in cash if they started to access leave entitlements.

The dividend payment for the six months to December was originally scheduled to be paid on April 3 but was deferred for a few weeks until Crown finalised additional debt finance.

Crown’s competitor The Star which has also announced standing down the majority of its workforce has also announced the deferral of its interim dividend.

Like Crown, The Star has also been to its bankers to fortify its balance sheet. The Star has secured $200 million in additional funding which combined with existing cash gives it $700 million in available cash reserves.

The Star estimates it will go through $220 million in cash if the casino remains closed until the end of June. That number increases to $320 million in the event of a six month shutdown to the end of September.

The Star also negotiated a waiver on debt covenants at the June 30 testing date.

No one is suggesting the casino operators are not hurting and could avoid standing down the majority of their workforce. But in the interests of keeping their financial powder dry, Crown’s decision to pay out shareholders seems at odds with capital prudence.

Many companies that have seen their revenue decimated by operational closures and social distancing measures have either deferred or cancelled dividend payments for the half to December - even though they had already been declared.

These include companies that have a major shareholder like Gerry Harvey’s Harvey Norman, Solomon Lew’s retail conglomerate Premier Investments and Graham Turner’s Flight Centre.

Others have deferred their dividends because of the uncertainty of what the future holds for profits.

Barton was not prepared to answer questions on Crown’s dividend policy for the full year to June 30,2020. Maybe Packer will also need to share some pain when that rolls around.