Fitch warns on casino risks after China arrests

The arrest of Crown staff underscores the risks associated with casinos’ Chinese VIP business, says Fitch Ratings.

Detained: Crown’s Jason O'Connor

The arrest of Crown Resorts staff in China underscores the risk associated with global casino operators’ Chinese VIP business, Fitch Ratings has warned.

The ratings agency said today that the detention of 18 Crown employees, including three Australians, was a sign that high-roller gambling by Chinese nationals outside China remained top of mind for Beijing.

“In early 2015, China had publicly condemned casino operators in neighbouring countries targeting Chinese nationals. The comment is widely believed to exclude Macau,” Fitch senior director Alex Bumazhny said in a note.

“Fitch believes the risks related to the more recent detainment, namely reduced VIP volume, to be more applicable to Asia Pacific casino operators outside of Macau.”

The arrests, which included Crown’s senior international VIP manager Jason O’Connor, are believed to be related to the marketing of Crown’s casinos in China, which is illegal.

Crown (CWN) shares have taken a hit following the arrests, amid fears the incident could deter high-rollers from its planned casino at Sydney’s Barangaroo.

Bloomberg reported last night that Crown was among several companies that received warnings from Chinese authorities about their marketing activities in China after the arrest last year of workers at South Korean casino operators Paradise and Grand Korea ­Leisure.

After the warning, ­Chinese authorities observed that Crown had senior executives make short business trips to China instead of spending long periods in the country, Bloomberg said, quoting a person familiar with the Crown arrests.

The person also claimed the authorities noted that the company shifted its marketing activities to focus more on resorts instead of casinos, but that they now didn’t perceive those actions amounted to a material change in Crown’s activities.

The board of Crown Resorts was to meet in Perth today, ahead of tomorrow’s annual general meeting, to receive a further briefing on the situation.

Crown’s 48 per cent shareholder, James Packer, made his first public comments on the affair yesterday, saying he was “deeply concerned” for the welfare of his staff, with scant information ­offered by authorities.

“I am respectful that these ­detentions have occurred in another country and are therefore subject to their sovereign rules and investigative processes,” Mr ­Packer said in a statement.

Crown has been promoting its facilities in China for at least 12 years.

Andrew Godwin, associate ­director of the Asian Law Centre at Melbourne University, said China’s Criminal Law (Article 303) made it an offence to “gather people to engage in gambling”.

He said activities that fell ­within the scope of this offence ­included “organising 10 or more Chinese citizens to travel overseas to gamble, and receiving kickbacks or introduction fees from such activities”.

A Shanghai lawyer, who asked not to be named, said he was surprised a February warning about promoting gambling by a senior official of the Public Security Ministry had not rung alarm bells for casino companies.