Detainees could face decade in jail
Australian casino operator Crown Resorts Ltd. continues to make headlines after the arrest and ongoing detention of 18 staff members by the government of Beijing. Despite that turmoil, which is still unresolved, the company partly owned by billionaire James Packer is going ahead with a listing of two domestic hotels to raise funds for development projects.
Last week, Mainland Chinese authorities arrested employees including Crown Executive Vice President Jason O’Connor. The staffers, based in China, worked to bring big-spending high rollers to Crown casinos in Australia. According to the New York Times, despite warnings from the Chinese government not to ply their trade on the mainland, O’Connor and his team courted VIP gamblers with promises of private jets, lines of credit, easy visas and other perks if they visited Crown properties Down Under.
Apparently the gambit was paying off: the Wall Street Journal reported that Crown enjoyed a surge in Chinese visitors to its Aussie properties following a crackdown on corruption in Macau that began in mid-2014.
The detained employees have been accused of “gambling crimes,” but no specific charges have yet been filed. The South China Morning Post noted that Crown shares fell 14 percent the first trading day after the arrests.
Anthony Johndrow of Reputation Economy Advisors told the newspaper that in a statement after its annual meeting, Crown said wealthy Chinese visitors in its international VIP program “contributed about 12 percent of revenues, but these visitors provide ‘substantially less than 12 percent’ of the company’s profits.”
Yet in the annual report, Crown head of Australian Resorts Barry Felsted was quoted as saying that more than one-third of revenue generated by the Australia side of the company came from international visitors, “predominantly from Mainland China.”
Crown Chairman Robert Rankin has said it is “both premature and speculative” to assess the impact of the arrests on the company.
Packer issued a statement saying he is “deeply concerned” about the welfare of his workers and Rankin tried to reassure investors at the company’s annual meeting that the matter would be resolved. Otherwise, the Journal reported, Crown “is trying to downplay the issue.”
“Under the circumstances, Crown is rolling the dice with its reticent strategy, due to the lack of information available about the employees and why they were detained,” said Johndrow.
Matt Horace, crisis management expert and CNN law enforcement analyst, said “public confidence” in Crown is on the wane and employee concern on the rise as a result of the incident. Crown’s challenge is to “mitigate falling shares, maintain employee confidence and public perception and to support its employees in a foreign penal system with little information,” he said.
Meanwhile, business goes on as usual at the company, whose board recently backed a plan for an initial public offering of 49 percent of an entity holding the Crown Promenade hotels and Crown Metropol hotels in Melbourne and Perth. The IPO would allow Crown “to maintain a strong balance sheet and credit profile to fund existing development projects,” the Melbourne-based company said. Crown Towers Melbourne isn’t included in the IPO, reported Bloomberg News.
The listing was first proposed in June, when Crown also said it would spin off international assets including a stake in Melco Crown Entertainment Ltd. Crown’s current planned investments include a A$2 billion (US$1.5 billion) VIP integrated resort at Barangaroo on the Sydney waterfront.
“If implemented, the IPO could realize significant value for Crown Resorts shareholders, while providing the ability to maintain a majority interest in key assets within the Australian business,” Crown said. “Such an IPO would support Crown Resorts’ ongoing capital management strategy and allow Crown Resorts to maintain a strong balance sheet and credit profile to fund existing development projects.”
The group continues to pursue a demerger of its international operations from its domestic business, and distance itself from the Macau market, which is only begin to see signs of recovery after 26 straight months of decline.
The New Zealand Herald’s Christopher Niesche says China “rang the warning bells” and told casino companies not to try to lure Mainland Chinese gamblers to foreign jurisdictions. In February 2015, an official at China’s Ministry of Public Security issued this statement: “A fair number of neighboring countries have casinos, and they have set up offices in China to attract and drum up interest from Chinese citizens to go abroad and gamble. This will be an area that we will crack down on.”
In the wake of the arrests, Matt Bekier, CEO of Australia’s second-largest casino company, Star Entertainment Group Ltd., cancelled a trip to Hong Kong and Macau in October. And Reuters reports that New Zealand casino operator SkyCity Entertainment Group Ltd. has said its operations may be adversely affected in the short term by the scandal. Shares in SkyCity fell nearly 14 percent amid fears a crackdown on gaming by Chinese authorities would hurt its ability to attract Chinese VIP gamblers and as it reported a fall in quarterly revenue.
