China arrests may hit Crown’s Sydney casino: analysts

James Packer’s wealth has been hit amid warnings that arrests in China could keep high-rollers away from his Sydney casino.

An artist’s impression of James Packer’s Barangaroo casino resort project. Pic: AFP

James Packer’s wealth has taken a $632 million hit as shares in his casino investment, Crown Resorts, dived after 18 of its staff were arrested in China.

It saw shares in Crown (CWN) suffer their largest daily fall on record, closing 13.9 per cent lower at $11.15, while its Australian rival The Star was down 3.66 per cent at $5.52.

The arrests could hit Mr Packer’s $2 billion bet on his planned Sydney casino at Barangaroo by deterring Asian high-rollers, analysts warned.

The staff were arrested at their homes four nights ago in an apparent crackdown on gambling promotions. They could face jail terms of up to 10 years, depending on the seriousness of any offence committed. Among those arrested was Melbourne executive Jason O’Connor, who is head of Crown’s international VIP programs.

Arrested: Crown’s Jason O'Connor

Mr Packer has a 48.2 per cent stake in the Australian-listed Crown Resorts. He resigned as its chairman last year.

As Crown shares slumped, the company said today it had still not been able to speak with its employees and had yet to be given details about why they had been detained.

However the promotion of gambling is prohibited in China, so only the hotel, restaurant and entertainment facilities of casino resorts can be marketed, even though gaming usually subsidises these other aspects of the business.

CLSA’s Sacha Krien highlighted today that a greater proportion of Crown’s project pipeline, as opposed to its rivals, is focused on Chinese VIPs, specifically at its planned Sydney casino at Barangaroo.

Mr Packer has pitched his Sydney casino, a long-held dream, as a venue for high-rollers. Asian VIPs are a key target.

His Macau gaming interest, through his investment in Melco Crown, has already suffered because of China’s anti-corruption crackdown, with VIP numbers to the region falling.

Australian casinos have picked up extra interest as Macau cools but the Crown arrests could have a widespread impact on high rollers visiting Australian resorts.

Mr Krien said VIPs might be reluctant to go to Australia given what appears to be a focus on Australia.

He added it was unclear if the crackdown would spread to junket operators bringing players to Australia, as opposed to casino staff, but he said it had to be a possibility.

“It may be that the Chinese government wants to funnel all VIP play through junkets where they potentially have more control,” he said.

Mr Krien added: “Stock prices are likely to be weaker even if there is no VIP impact — this incident highlights the potential fragility of VIP play and its exposure to Chinese regulation and enforcement.

“Another issue is debt collection … it could impact the ability of Australia casinos to collect outstanding debts.”

Detained: Crown’s Jiang Ling, right, with husband Jeff Sikkema.

China’s Ministry of Public Security launched a crackdown in February last year, Forty-seven Korean casino staff employed by Grand Korea Leisure and Paradise Co were arrested in June for “soliciting and organising Chinese citizens to gamble overseas”. The employees are believed to still be in detention 18 months later.

Paradise is down 50 per cent since the arrests and Grand Korea Leisure is down 40 per cent.

“Given the scale of the arrests, it begs the question of whether the Chinese government has redefined what foreign casinos are able to promote in China and they are making an example of Crown,” Mr Krien said in a client brief this morning.

“It would be surprising if Crown was doing anything different to other casinos with marketing staff in China.”

The analyst said Crown and Star Entertainment and SkyCity would have to reconsider whether they employ any direct marketing staff into China.