Little impact expected for Melco Crown
Crown Resorts Ltd.’s plan to de-merger some international assets has earned a thumbs-down from credit rating agency Fitch. According to the Australian, James Packer’s Melbourne-based company announced that it would dispose of certain international investments and raise its dividend payout ratio to 100 percent of net profits after tax. Shortly thereafter, Fitch downgraded its long-term foreign currency issuer default evaluation and its BBB senior unsecured rating.
The Sydney-listed company, which operates the Crown Casino and Crown Perth, will de-merger its 27.4 percent interest in Melco Crown Entertainment, which operates Macau’s City of Dreams resort, as well as its Alon development in Las Vegas. The firm declared will also dispose of its one-fifth stake in the Nobu restaurant chain, its 50 percent ownership of UK casino operator Aspers, and its investment in Caesars Growth Partners.
“The Rating Watch Negative reflects Fitch Ratings’ view that the de-merger will result in the removal of material investments that will reduce Crown Resorts’ cash flow,” according to a note from Fitch Ratings. “Fitch Ratings believes that this, combined with the higher dividend, will lead to a weakening in Crown Resorts’ credit metrics, particularly as the company has a significant capex pipeline for its Australian casino assets.”
The de-merger is subject to approval by the firm’s board of directors, the Australian government and regulators.
Crown is also considering an initial public offering for some of its Australian properties, which may include the Crown Promenade hotels in Melbourne and Perth and Crown Towers Perth, now under construction, according to the newspaper.
“Should Crown Resorts proceed with the initial public offering, it would place the hotels into a new real estate trust in which it would retain a 51 percent stake,” read the statement from Fitch Ratings. “While this proposal would see a further reduction in the asset base, the impact could be counterbalanced by the extent that the proceeds are directed to debt reduction.”
Creating a newly listed company to hold most of its domestic assets would hopefully shield those assets from the effects of an ongoing recession in Macau. In February, Crown posted a 35 percent loss in first-half profit as high rollers continued to avoid casinos in the Chinese territory. In May, Crown slashed its stake in Melco Crown from 34 percent to 27 percent, all the while insisting it has “great faith in the long-term development of the Macau market.” Packer’s joint venture with Lawrence Ho, Melco Crown Entertainment, comprised more than 30 percent of Crown’s total net profit for the financial year that ended in June 2015, reported Reuters.
Crown Chairman Robert Rankin has said Crown’s Australian resorts are “not being fully valued (because) the share price has been highly correlated to the performance of its investment in Macau.”
Wells Fargo Securities says Packer’s plan is likely to have “little impact” on Melco Crown Entertainment, his joint venture with Lawrence Ho. “If Crown were interested in selling (out of Melco Crown)… we think there’d be more efficient means to sell its stake,” said analysts Cameron McKnight, Robert Shore and Daniel Adam. “We don’t see this as a move for Crown to sell down its MPEL stake, and likely has more to do with separating Crown’s very stable, mature domestic assets from more volatile Asian markets and international development projects.”
Wells Fargo added in its note that Crown’s planned restructuring “could stem from shareholder activism,” according to GGRAsia.
“Last month, a large Crown shareholder publicly exited its position due to Crown’s diversification… from its core casino business. We note that in December, the Australian press reported Crown was considering spinning out its real estate.”
