Lawrence Ho has given his billionaire Australian friend, the man he calls “a brother”, a farewell present worth over $200m after quitting the share register of James Packer’s Crown Resorts.
Crown shares on Thursday closed almost $1 higher, seemingly on speculation that the buyer of Ho’s stake, global private equity giant Blackstone, may want to buy more of Crown and even make a takeover bid for the company. The share price surge has boosted Packer’s paper wealth by over $200m after a coronavirus-inspired slump in the Crown share price over the past six weeks, but the billionaire is as intrigued as anyone about the future intentions of Blackstone.
The US group reported a $US1.1bn net loss for the first quarter compared to a $US481m profit in the first quarter of 2019 after making what it called “meaningful markdowns” in its hotel and retail assets, which comprise about 15 per cent of its global portfolio. But at its results the Stephen Schwarzman-led group stressed it still had about $US152bn left in “dry powder” or capital, to invest in new opportunities, meaning the $550m investment in Crown is a mere drop in the ocean.
Blackstone may view its Crown stake as a mere passive investment, but given the US group’s track record that is unlikely.
What most interests Blackstone is Crown’s high-end casino properties in Melbourne, Perth and soon-to-be Sydney, underscoring that it sees value in property assets that the market is dramatically underpricing.
Amid the coronavirus turmoil, publicly traded assets are trading at far lower multiples than unlisted assets, providing great value for those prepared to take the plunge and invest.
Perhaps Blackstone is keen to revisit the plans by Crown announced in 2016, which were subsequently shelved, to spin off the hotels into a new trust to create a listed vehicle holding over $2bn worth of property.
However, such a transaction would be difficult to contemplate for some time given the crushing impact of the coronavirus pandemic on Crown’s operations, which are virtually on care and maintenance for an indefinite period.
While Crown’s Perth property will certainly re-open before Melbourne, both openings are sure to be staggered over an extended period.
The next key date in the fate of Crown Melbourne comes on May 11 when the closure direction from the Victorian chief health officer in place for the gambling floor, food and beverage and convention operations expires.
And the question remains when the nation’s borders will re-open again for VIP gamblers.
Blackstone may also want to make a takeover bid for Crown, given Packer has indicated over the past year that he is a seller at the right price for his 36 per cent shareholding.
He was prepared to sell to Wynn Resorts last year at a price over $14 per share before the deal collapsed and then agreed to sell 20 per cent of his stake to Ho for $13.
Packer would be a highly unlikely seller at prices much below that mark but if the Crown share price was pushed back towards the $13 mark by takeover speculation he may think differently.
However his hands would be tied until the NSW government concludes its inquiry into Crown Resorts, which has been indefinitely delayed because of the coronavirus pandemic. What will be left of the inquiry when it resumes remains to be seen, given there is now no reason to be investigating Ho and his network of companies given he has apparently abandoned his Australian ambitions.
But you would expect the inquiry would be interested to know Blackstone’s ambitions for Crown, given it would need to pass probity to increase its interest beyond 9.9 per cent.
The inquiry would also have no reason for not continuing its probe into Crown’s alleged links with organised crime figures and junket operators allegedly involved in money laundering.
One outcome could still be a new national body that licenses junkets operating in Australian casinos.
Blackstone is no stranger to the casino industry.
It bought the Cosmopolitan casino and resort in 2014 for $1.7bn but reportedly was looking for buyers for the asset last year.
Earlier this year, Blackstone’s real estate investment trust division also announced a $US4.6bn joint venture with MGM Growth Properties on the MGM Grand and Mandalay Bay resorts in Las Vegas.
Certainly its entry to the Crown share register adds another chapter to the intrigue and controversy that has engulfed the Australian casino group and its major shareholder over recent years.
Packer won’t be happy to see Ho go, given the friendship the two have rekindled over the past two years following the horrors of Crown’s exit from Macau in 2016, and Ho is said to be keen to keep the lines of communication open between the two billionaires.
But Ho has certainly done his friend a favour on his way out by giving a well-needed boost to the Crown share price.
In the process he has also likely diluted the further damage that could have been caused to Crown by the NSW inquiry ahead of the opening of $2.4bn Sydney casino project — Packer’s long-held dream — later this year.
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