James Packer in $1bn Melco selldown

James Packer’s move is expected to boost the balance sheet of his Australian-listed entity.

Melco Crown CEO Lawrence Ho will emerge with a bigger slice in Melco Crown as James Packer sells down.

Billionaire James Packer’s decision to sell down a $US800 million stake in Macau-focussed Melco Crown will alleviate balance sheet concerns of his Australian-listed investment, according to analysts.

James Packer last night cut Crown Resorts’ stake in its Macau-focused casino partnership in a $US800 million ($1 billion) deal as the region struggles with weak gaming revenue.

The selldown of the Asian business comes as concerns have been rising over Crown Resorts’ debt load as it embarks on a $2bn Barangaroo project in Sydney.

At the same time, the funding environment is understood to remain challenging for capital intensive casino ventures.

Crown last night said it had entered an agreement that would see its Melco Crown Entertainment joint venture buy back 155 million shares held by the Australia’s Crown.

This will cut Crown’s stake in the Asian casino venture from 34 per cent to 27.4 per cent.

“The repurchase forms part of Crown’s ongoing capital management strategy and proceeds will be initially used to reduce Crown’s net debt position,” the company said.

“Following completion, Crown will assess its capacity to make a distribution to shareholders.”

Crown shareholders, including Mr Packer who has a 53 per cent stake in Crown, are expected to share in a capital return of up to several hundred million dollars.

The market has responded positively to the news, with Crown Resorts (CWN) stock lifting 5.3 per cent to $12.45 in early trade.

Deutsche Bank’s Mark Wilson said the share sell down in Melco was a positive move given the challenging outlook for Macau, which has continued to record a slump in gaming revenues.

Mr Packer will also resign as co-chair of Melco Crown and take on a deputy chair role.

The deal will see Lawrence Ho’s Melco group become the single biggest shareholder in Melco Crown.

Mr Ho will remain as the sole chairman of Melco Crown.

The announcement comes as Macau’s gross gaming revenue declined 9.5 per cent in April and analysts expect revenue to remain weak in May as the Labour Day long weekend was not as buoyant as in previous years.

Last night Mr Ho said the deal was “a tremendous milestone for Melco”.

“It demonstrates Melco’s positive outlook for Macau’s long term future,” he said.

The Australian understands that Crown’s key priority is its Barangaroo project in Sydney and the company wants to be confident it has the capital for the new casino, which is awaiting final government approval.

Melco’s Mr Ho is believed to have been in talks about the share repurchase for at least six months.

Mr Packer, who is in Israel, is said to be happy with the outcome.

Expectations that Mr Packer was looking to privatise Crown Resorts is believed to now be off the table.

Melco Crown’s Mr Ho recently flagged to investors that Macau had a “very tough” operating environment, with the slowdown of economic growth in China and government policies that could adversely affect ­gaming.

But he said he remained optimistic about the outlook, given the company’s strategy to focus on the mass market, as opposed to the high-end VIP customers.

Deutsche Bank’s Asian gaming analyst Karen Tang said she expected the Macau government to release its mid-term review on the gaming industry in coming weeks. Ms Tang said the government was drafting a new set of rules to tighten regulations for new junket operators.

“Although these measures will not impact existing junket operators, we expect this is just the first step of regulatory tightening under the new head of (Macau’s) gaming bureau. We expect more new rules after the government’s mid-term review,” she said.

The potential regulatory changes could increase risks in the second quarter.

Ms Tang said the May figures could disappoint resort operators given anecdotal checks suggested the Labour Day long weekend was not as “rosy” as in previous years. For the first quarter of 2016, the number of Chinese tourists to Macau dropped 2 per cent

“We think both Macau and Hong Kong are losing their charms as holiday destinations,” Ms Tang said.