Casinos take a hit on bourse as Crown arrests rattle $10bn plans

Casino operators hit new lows on the ASX amid fears about the impact of the Crown arrests on local projects.

Crown’s Rob Rankin said information on the arrested staff was hard to come by. Picture: Stuart McEvoy

Australia’s casino operators hit new lows on the local bourse yesterday as fresh questions were raised about the impact the arrest in China of 18 staff from the James Packer-backed Crown Resorts will have on a planned $10 billion outlay on new and upgraded local resorts.

Crown led the market carnage, dropping to a one-year low of $10.60. Mr Packer, who owns 48.2­ per cent of Crown, has seen the value of his stake fall about $700 million since the arrests. Crown’s major rival, Star Entertainment Group, hit a nine-month low of $4.97, while SkyCity hit an almost one-year low of $3.52.

The three casino companies have all been expanding on the back of the rise of Chinese tourists visiting Australia but some industry sources have cautioned that boards would now be nervous about the level of planned development if the Crown drama dented the inflow of Chinese tourists.

Analysts said it was obvious there would be investor concerns about the almost $10bn in capital expenditure planned by the three companies on new casinos and upgrades, given some of that spend was directed at VIP rooms.

GRAPHIC: Crown projects

Crown chairman Robert Rankin last week said that given the lack of information about its detained staff, it was not possible for anyone to be able to provide any informed comment on the arrests.

The arrests are said to be linked to the marketing of the Australian casinos to Chinese high rollers, which is illegal in the economic powerhouse.

Market speculation has also suggested attempts to collect a $15m debt from a so-called “whale” were behind the move on Crown by Chinese authorities. Crown has denied that any of its people were collecting a debt, which is illegal in China.

A leading industry player warned that while attention had focused on the impact the China drama would have on earnings across the sector, the stress on balance sheets would be immense if the international business market — Chinese high rollers — was dead.

Crown is set to open a six-star, 500-room hotel in Perth in ­December and it is also planning a $1.7bn hotel tower in Melbourne. The biggest concern from investors is Crown’s $2bn Sydney ­casino, which Mr Packer has described as his “most important” project.

The Sydney development, Barangaroo, scheduled to open in 2021, has long been pitched as a venue for Asian high rollers. The resort was originally forecast to open in 2019 and while the delay has frustrated the company, it is now seen as an asset following the China arrests.

“Barangaroo is not scheduled to open for another five years and it’s important to note the surging levels of Asian tourists to Australia from across the region,’’ Mr Rankin said when questioned on the Sydney plans.

Credit Suisse analyst Larry Gandler said in a client note following news of the Crown arrests that it appeared to be a Crown-specific issue, given no other ­casino had staff taken into custody. He said reputational risk could result in a temporary avoidance of Crown facilities by players and junkets, followed by a multi-year recovery.

“We take the view that Australia is likely to remain an ­attractive destination for VIPs,” he said.

At The Star’s annual meeting in Sydney on Friday investors are likely to ask about its exposure to any ­potential fallout from the Crown arrests.

The company is set to spend about $2bn for its financial contribution on projects it is developing in Sydney and Queensland with its Hong Kong-based joint venture partners. The developments are valued at $5bn.

Matt Bekier, chief executive of The Star, took a position more than 12 months ago on the need to increase hotel capacity to capture an expected influx of Chinese tourists. He told The Australian last month it was important to target Asian tourists given Chinese visitors spent $8.9bn in Australia in the year to June.

A spokesman for The Star yesterday said there were now more than a million Chinese coming to Australia each year.

“Anyone who thinks the developments of the scale we are planning and undertaking is designed for the VIP market has no understanding of the tourism industry,” he said.

“We’ve been saying for some time that luxury hotels, significant expansion of our dining options from high-end signature restaurants to pop-ups, and additional retail will deliver compelling tourism.”

CLSA’s analysts said that at best the Crown arrests were a Crown-specific matter that impacted only its direct VIP business.

However, at worst, the issue could spread to all Australian casino operators and harm direct and junket VIP businesses.

SkyCity yesterday said it was still confident in its $300m spend on expanding and upgrading its Adelaide casino. Part of the pitch for the development was to attract high rollers, given domestic gaming revenue was falling.

Additional reporting: Rowan Callick