Aggressive growth comes at a cost
With an estimated price tag of $4 billion, Crown Resorts’ planned casino property on the Las Vegas Strip could deplete the company’s cash just as growth in gaming revenue in Macau slows down. And that reduce its borrowing power when the company is investing heavily in a number of resorts.
Bloomberg called Crown “the worst performer in the iTraxx Australia index of credit-default swaps in the past three months.” And the Vegas plan puts Crown’s projected spending on resorts to about $10 billion in the next six years, according to Credit Suisse AG.
“The Las Vegas land purchase further reinforces the company’s aggressive growth strategy and may weaken credit metrics,” said Raymond Lee of Kapstream Capital in Sydney. “This new project will likely result in significant capital spending in addition to the existing projects.”
But Andrew Pascal, who will partner with the Aussie billionaire on the Vegas project, says a Crown development in Sin City will deliver an unmatched experience that will draw VIP players from around the world.
Pascal is a former senior executive at Wynn Las Vegas and Encore and will run Crown’s new joint venture. The subsidiary will be majority-owned by Crown and include hedge fund Oaktree Capital Management as an equity partner, according to the Australian Financial Review. Construction is expected to begin in 2015 and the property could open in 2018.
Crown Executive Vice President of Strategy and Design Todd Nisbet, acknowledged that some investors are worried that a $6 billion-plus casino development pipeline could be a burden. But Crown and Melco have two of the “strongest balance sheets in the gaming industry,” he said.
Aside from Las Vegas, Crown is building a new hotel at its Perth casino. Once it has development approval, construction will begin on the $1.5 billion Sydney hotel and casino. Melco will open a $1.3 billion casino in the Philippines in 2014, and plans to open its third Macau casino in 2015. And there are plans in the works for Crown in Sri Lanka and Melco in Japan.
Nisbet brushed off the concerns. “We have very successful businesses that require us to look at new investment opportunities and grow the company,” he said. “We are operating well within our means.”
