Investors hold fears for Crown’s local operations

There are fears convictions for Crown Resorts employees in China could affect its Australian gaming licences.

The arrest of Crown Resorts employees may have local repercussions

Fears are spreading among investors that convictions for any of the 18 Crown Resorts employees arrested in China last week could have implications for the company’s Australian gaming ­licences.

The move came as it emerged last night that Matt Bekier, the chief executive of rival casino ­operator Star Entertainment had cancelled a planned trip to Macau.

Mr Bekier makes quarterly visits to Hong Kong to see the company’s joint venture partners, Hong Kong-based investors Chow Tai Fook and Far East Consortium.

Mr Bekier also planned to visit Macau on the now-cancelled trip, but a spokesman said he needed to remain in the country to deal with The Star’s major investors in the wake of the Crown arrests and had nothing to do with securty concerns. “Any suggestion otherwise as to Matt’s travel arrangements is completely inaccurate,” a Star spokesman said.

Shares in The Star, which runs casinos in Sydney, Brisbane and the Gold Coast were swiped by the steep fall in Crown. Star dropped 11 per cent while Crown shares fell 16 per cent.

Concerns that fallout from the arrests could have more than just a revenue impact on Crown’s high-roller business, coincided with the company’s fixed-interest securities coming under selling pressure.

While the ASX-listed Crown subordinated notes are regarded as more resilient than Crown shares given the much longer term outlook among investors, series one and series two of the notes finished the week down 3.5 per cent and 2.8 per cent, respectively.

“The declines show that fixed-income investors are also becoming concerned about the longer-term implications of the Chinese arrests,” said ADCM Services credit analyst Philip Bayley.

“There is the obvious revenue impact if the Chinese VIP business is lost, but Chinese convictions for Crown employees may also have implications for Crown’s Australian gaming licences.”

In Melbourne, where Crown operates the nation’s biggest casino, the licence was granted in 1993 and expires in 2050 but is subject to review every five years by state-based authorities to make sure the company is a “suitable person”.

The last review, which ruled in Crown’s favour, was completed for the period July 1, 2008 to June 30, 2013 — the halfway point of the overall tenure of the licence.

Series one of the Crown Resorts notes are due to mature in 2072 and pay interest which is calculated at the bank bill swap rate plus 5 per cent. Series two of the notes are due for repayment in 2075 and offer a 4 per cent margin above BBSW.

Last Monday, Crown shares went into free fall when it emerged that 18 staff, including vice-president of international VIP Jason O’Connor, had been arrested over an apparent link to direct gaming promotions, which are illegal in China. The 18 staff could face jail terms of up to 10 years.

Crown chairman Robert Rankin told shareholders at last weeks annual meeting it was not possible to provide any detailed commentary on the detentions, given the lack of information.

He also said it was too early to determine what impact the arrests would have on the company.

However it is understood Crown doesn’t believe its staff were chasing a customer debt.

The company also believes its people were undertaking marketing activities that fell within the confines of Chinese law, and were not carrying sensitive information on their personal devices that related to the financial affairs of so-called “whale” customers.

There were other Crown staff in China who were not arrested.

Crown tried to hose down fears about the financial impact of the arrests, saying only 12 per cent of its revenue was generated from mainland China VIP players — equivalent to about $380 million on last year’s figures after taking into account the direct and indirect VIP income.

Citi analyst Rohan Sundram said it was likely Crown would seek to source new players from other markets, such as Hong Kong, southeast Asia and India.

Mr Bayley, however, noted that Crown had an ambitious, multi-billion dollar expansion strategy in Australia that was heavily dependent on a continuing flow of Chinese whales to drive profits and justify the Barangaroo project in Sydney.

Crown was granted a gaming licence for Barangaroo without going to a competitive tender on the condition it would be a $2 billion-plus, VIP-only casino.