Deep in any corporate vault lies a piece of paper or two that affirms the right of an enterprise to operate, such as articles of incorporation, a banking or broadcasting licence or a mining permit.
Apart from diligent company secretaries, no one else gives the paperwork a second thought. But when this right to operate is threatened, the anxiety level quickly rises.
Nothing exemplifies the dangers more than the stricken Crown Resorts, which faces a crucial NSW decision on whether it should hold the right to operate Sydney’s second casino. The Independent Liquor and Gaming Authority has deemed the Packer-linked entity to be not suitable, but it’s up to Macquarie Street to decide.
In Victoria, Crown faces no less than a royal commission, albeit with tightly framed terms of reference. A WA inquiry is yet to come.
A couple of months back, it was inconceivable that Crown was even in remote danger of losing its franchise, even though allegations of money laundering at its money bins had been gaining traction.
And while the Hayne royal commission was tough on the banks, there was never any question their right to operate would be curtailed.
But the lesson from Crown is don’t take the hand that signed the paper for granted. Australian miners operating abroad will heed this already, having been chucked out of jurisdictions including Indonesia and Thailand.
Crown shares have held up remarkably well despite the prospect of the company becoming the operator of a modest casino in Perth and the proprietor of the country’s only six star hotel (Barangaroo). The stock drifted between $12 and $14 before the COVID crisis — it bounced back to $9 late last year and has range-traded since then (it is current around $9.90).
Crown shares remain 19 per cent higher year on year, despite the COVID ravages and the stiffening regulatory headwinds.
This suggests that investors are not convinced the NSW and/or Victorian governments will pull the pin, because the company is able to demonstrate that it has addressed the sins of a past under a revamped board and management led by former Liberal minister Helen Coonan.
If an axe has a new handle and a new head, is it the same axe?
Crown’s $6.7bn valuation is also underpinned by conservative gearing and $5.1bn of property plant and equipment, notably the snazzy Southbank turf real in Melbourne and Barangaroo. At its half year results the company revealed the sale of apartments at Barangaroo was likely to reap $1.1bn, compared with market expectations of around $800m.
Crown’s patronage update was also better than expected, with visits to its mainstay Melbourne casino down 26 per cent in the month of January. Given the COVID restrictions that reduced holiday traffic, this figure could have been much worse.
Within the Perth bubble, visitations to Burswood rose 8 per cent. While Crown is under the spotlight, enhanced regulatory risk is also a key concern for incumbent Sydney casino operator Star Entertainment. Sky City Entertainment runs the money bin in Auckland — its flagship asset — but also has casinos in Wellington, Hamilton and Adelaide.
Star shares have gained about 18 per cent over the last year, while Sky City marked time. At the very least, these companies face increased costs to cope with the extra scrutiny over money laundering concerns, while the lucrative Chinese ‘‘junket’’ channels are a thing of the past even when normal travel returns.
The broader lesson is whether the government grants the right to run a nursing home, casino, a rubbish dump or a TV station, don’t take it for granted.
Tim Boreham edits The New Criterion.
tim@independentresearch.
com.au
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