Barangaroo gambling licence for Crown Resorts in NSW still appears months away

A final decision in NSW on giving Crown Resorts a licence for its Sydney gaming operation is not now expected until early next year.

The NSW Independent Liquor and Gaming Authority has yet to agree to opening of the gaming floors of Crown Resorts’ Barangaroo, Sydney, casino, in the building above. Picture: NCA NewsWire / Dylan Coker

A final decision on handing Crown Resorts a licence for its Sydney gaming operation is not expected until early next year, NSW government officials have privately warned.

The Independent Liquor and Gaming Authority, which in February was handed the Bergin report into the James Packer-backed company’s governance issues, had originally indicated it expected an agreement for the opening of the gaming floors of the Barangaroo casino by November. But the regulator, The Australian understands, will not finalise a deal with Crown until the first half of 2022.

Officials from ILGA met again with Crown representatives on Monday as the two parties continue to discuss the opening of the company’s major new casino. The resolution of regulatory issues in NSW is also expected to impact on the $12.50 all-cash bid for the company lobbed by American private equity giant Blackstone late last week. The offer values the casino group at $8.5bn.

Despite the delay, ILGA’s expectation that Crown will be able operate in Sydney from early next year is an indication the regulator has decoupled its decision-making from the outcomes of separate inquiry processes running in Victoria and Western Australia.

The WA royal commission is not expected to release its report until March. A similar inquiry run by Ray Finkelstein in Victoria recommended Mr Packer sell down his 37 per cent stake in Crown to less than five per cent by 2024.

The Blackstone offer is conditional on a unanimous recommendation from the Crown board, and regulatory approval from casino regulators in Victoria, NSW and Western Australia. The ILGA will also need to allow the Barangaroo casino to operate before December 2022.

But there is significant scepticism about the prospects of Blackstone’s bid ¬– it’s third for the company – among equity analysts. Justin Barratt and Oliver Ridge, of CLSA, said they did not believe it would be supported by shareholders “given offer terms could change pending the result of current regulatory reviews and the relatively low premium to pre-Covid trading in Crown”.

“The proposal highlights the value of Crown’s premium long-term property assets, in our view. While James Packer may be a willing seller given he is required to reduce his (37 per cent) holding to below (five per cent) by September 2024, we do not believe the offer is at a significant premium to Crown’s pre-Covid trading levels to gain the support of shareholders,” they wrote in a note to clients.

For Blackstone operating a property portfolio globally of $US448bn ($621bn), we see Crown’s assets as premium and fit in with Blackstone’s strategy of ‘buy it, fix it, sell it’.

“In this regard, Blackstone could acquire Crown, play a part in the fixing of (Crown)’s deemed corporate governance and compliance failings (as tabled in the Bergin report and Victorian Royal Commission), and then look to divest the asset for a premium once these concerns are resolved.”

Blackstone already owns a number of gaming assets including the MGM Grand and Bellagio in Las Vegas, both of which are managed by MGM. Blackstone owns and operates the Cosmopolitan.

“We expect terms from Blackstone would need to be improved in order to persuade the shareholders to part with their interest, in our view,” Mr Barratt and Mr Ridge write.

In a separate note, Jarden researcher Ben Brownette said he expected Crown’s Sydney gaming operations to begin in the second half of 2022. “The key downside risk we see is in any bid condition not being satisfied, which may lead to a lower bid or no bid, having negative consequences for earnings and valuation,” he wrote. “Fundamental risks include a slower ramp-up out of Covid-19 and include adverse/punitive legislation from state governments.”