James Packer’s hopes of a further Crown selldown hit by renewed regulatory focus, says analyst

James Packer’s hopes of further slimming his Crown stake could be set back by regulators.

Lawrence Ho and James Packer at Melco's Studio City casino resort in Macau. Picture: Bloomberg

James Packer’s hopes of further reducing his interest in Crown Resorts to its Macau suitor could be setback by an increased regulatory focus on the casino company.

Bernstein analyst Vitaly Umansky said he believed that Mr Packer hoped to divest his residual position in Crown (CWN) as soon as feasible with Melco Resorts and Entertainment being the buyer.

“Packer has been looking to reduce his gaming interests for quite some time and (Melco boss) Lawrence Ho has commented that a full acquisition of Crown would be attractive,” Mr Umansky said.

“While both have been coy about a complete acquisition, we believe a transaction would have merit.”

Melco spent $1.76 billion buying a 19.9 per cent stake in Crown from Mr Packer’s private investment vehicle Consolidated Press Holdings, leaving the Australian billionaire with a 26 per cent interest in Crown.

Melco’s chairman Lawrence Ho told Bloomberg in a televised interview in May — following news of the deal — that it would be his “wish and goal” to move above that initial interest.

The casino boss also noted in the Bloomberg interview that he would need to gain regulatory approvals to increase his stake. But he also highlighted that he went through Australian probity and regulatory approvals when he and Mr Packer first established the Melco Crown partnership back in 2004. That partnership ended in 2017 when Mr Packer sold out of the venture.

Since the new deal with Melco was struck, a series of reports linking Crown to Asian crime gangs and money laundering have intensified regulatory scrutiny on the company. Crown has denied the allegations about its connection to criminal activity.

The NSW Independent Liquor and Gaming Authority announced earlier this month that following the reports, it would hold a public inquiry with royal commission powers into Crown and “its close associates”. The regulator had previously granted Crown a licence for its $2bn Sydney casino at Barangaroo.

The regulator said the inquiry, to be led by former NSW Supreme Court judge Patricia Bergin, SC, would examine Crown’s “Barangaroo restricted gaming facility licensee and its close associates”.

Bernstein’s Mr Umansky said that acquiring a minority ownership in Crown was likely Melco’s first step in taking a controlling ownership stake and potentially an outright acquisition of Crown.

He highlighted that a probity review of Mr Ho was needed before he could increase Melco’s 19.9 per cent stake in Crown.

“Recent sensationalistic news articles in Australia highlighting junket business activity at Crown casinos have led to a heightened politically charged environment,” Mr Umansky said.

“There is a risk that in such an environment a Melco acquisition or even the board seat it seeks with the 19.99 per cent interest could be denied by the regulators. This would be unfortunate for both Melco and Australia’s gaming industry.”

The analyst outlined that politics being what it was, there was no assurance that Melco would gain regulatory approval for a full acquisition in light of both the prevailing China-Australia tensions that exist and the fog surrounding Crown’s links to junkets.

He said that if Melco decided to back away from an acquisition after a negative regulatory review, Crown could be up for sale again.

“We would not discount (previous suitor) Wynn or another company potentially coming back to the table at the right price,” Mr Umansky said in a client note on Melco Resorts and Entertainment.

The Hong Kong-based analyst added that he expected Melco and Mr Ho to clear the probity review and receive regulatory approval on the merits.

“After all, Melco and Crown had been long-time partners before Crown sold its stake in Melco,” he said.

“We would hope to see a full acquisition of Crown at the right price in the future to limit complexity of Melco. If Melco were to acquire Crown in the future, it may need to be some combination of stock or equity-linked and new debt.”