Fitch places Crown Resorts on negative watch after rocky fortnight

Crown Resorts has been placed on negative watch by Fitch ratings agency following a fortnight of controversy and a combative AGM last week.

Fitch believes that Crown would be able to absorb $800m in fines and profits before its rating is affected, due to the company’s strong Australian assets and ample liquidity. Picture: AAP

Crown Resorts has been placed on negative watch by another ratings agency following a fortnight of controversy and a combative annual general meeting last week.
Fitch on Monday said it has changed its outlook on Crown’s BBB long-term issuer credit rating from “stable” to “negative” following poor performances by executives in front of a NSW Inquiry into the company and the regulatory intervention of two government agencies.

Last week, Moody’s announced it was placing Crown’s credit rating under review.

Fitch said the Victorian gambling regulator’s “show cause” notice issues two weeks ago over dealings with gambling promoters or “junkets” linked to organised crime, and AUSTRAC’s enforced investigation into money laundering practices exposed the company to fines, the risk of changes to operating conditions, and changes to or possibly the loss of casino licences.
The cause of this, the agency said, was lacklustre corporate governance. It said the substandard performances by Crown management, executives and major shareholder James Packer at the NSW Interdependent Liquor and Gaming Authority’s inquiry into Crown’s suitability revealed numerous deficiencies in the company’s risk management process and corporate culture.
The three directors up for election at last week’s AGM only survived because of Mr Packer’s 36.7 per cent stake – but one, Professor John Horvath, chose to resign anyway.
Crown also received a first strike on its remuneration report and the company’s biggest institutional shareholder Perpetual called for the company’s entire board to be replaced.
“The regulatory inquiries into its compliance with various laws, regulations and licencing requirements, including anti-money laundering, indicates weaknesses in its risk management and internal control structures, as well as the level of oversight by its board,” Fitch analysts said.
“These investigations follow the July 2019 investigation of Crown breaching Chinese gaming laws.
“This weakness has exposed Crown to punitive fines and penalties and increased regulatory oversight.
“This is the main factor underlying our revision of Crown‘s Outlook to Negative.”
Materially, Crown has some room to move before its rating is downgraded.

Fitch believes that Crown would be able to absorb $800m in fines and profits before its rating is affected, due to the company’s strong Australian assets and ample liquidity.
The likelihood of the most serious of all potential consequences – the loss of the Sydney Barangaroo casino licence – is, it says, a “low probability”.
But Fitch analysts said they are not going to lift the possibility of a downgrade until Crown proves that it can change.
“The gaming operator also started a review of its activities with junket operators, the main factor in the initiation of the investigations,” the analysts said.
“However, our view of the governance structure will turn positive only upon successful implementation of these measures and any further measures required by regulators to address these weaknesses.”
Crown Resorts closed at $8.63 a share on Monday, down .92 per cent.