Crown shares jump on news of selloff
James Packer’s Crown Resorts is preparing to sell $800 million worth of shares in its Macau partner, Melco Crown Entertainment Ltd., back to Melco, effectively slashing its stake in the company from 34 percent from 27 percent.
The move has been widely attributed to a two-year recession that’s battered Macau and siphoned billions in value from the Chinese territory. Packer will also step down as co-chairman of Melco Crown and become deputy chairman, the Hong Kong-based company announced last week.
According to Bloomberg News, Crown’s commitment to Macau has suffered, despite its assertion in 2015 that the company had “great faith” in the territory.
Last year Packer met with private-equity firms and pension funds about a possible buyout of some Crown assets, according to sources. Sam Fimis of Patersons Securities Ltd. in Melbourne said Packer could take advantage of cash from the stock sale to pursue other investments. “I’d say there’s definitely something lurking in the background,” he told Bloomberg.
Crown Chairman Rob Rankin said Packer’s selloff is part of the Australian company’s “ongoing capital management strategy,” and casino magnate Lawrence Ho likewise acknowledged that his Melco partner is engaged elsewhere.
“It’s no secret that Crown does have a very robust development pipeline,” said Ho, chairman of Melco Crown, on an earnings call with analysts. “They don’t make a secret that there are some interesting opportunities for them back home and also in Las Vegas,” including Barangaroo in Sydney and Alon in Vegas.
With the repurchase, Melco Leisure & Entertainment Group Ltd. becomes the single largest Melco shareholder, the company said. Meanwhile, Crown Executive Vice President Todd Nisbet will resign as Melco’s director, which will leave its board with three Melco members, two Crown nominees and four independent directors.
Barron’s reported that Melco Crown is down 6.4 percent so far this year, despite the 2015 opening of its Hollywood-themed Studio City resort on the Cotai Strip. The resort was built with mass market appeal in mind, in keeping with a directive from the Mainland Chinese government and local lawmakers to reduce the city’s dependence on VIP play and gaming in general for its economy. News that Crown would sell back shares caused the company’s share values to rise 4.9 percent last week.
Union Gaming analyst Grant Govertsen had discouraging words for operators in Macau, saying, “We can’t get over the mounting competitive threats that will be faced by all casinos but especially by Melco Crown’s City of Dreams (for both its customers and its operating staff) as Wynn Palace comes online in August and competes aggressively for a very similar premium customer in a segment of the market that, while stabilizing, isn’t showing signs of growth (yet).
“This will be compounded in early 2017 with more incremental higher-end focused supply coming online across the street from both COD and Wynn Palace,” he said.
According to the website CalvinAyre.com, MCE’s Q1 earnings results showed revenue up but profits down for the three months ending March 31. Total revenue increased by only 5 percent to $1.1 billion on the heels of Studio City’s October’s opening and the launch in February of VIP gaming at the new City of Dreams Manila property. The positive numbers were cancelled out by tumbling VIP turnover and mass market revenue at MCE’s Macau properties.
The brokerage Bernstein said Studio City’s performance since opening has been “lackluster” due to the lack of VIP gaming. “The casino has mass operation with no VIP and very limited high-end premium mass play. Consequently, it takes a longer time to ramp and drive profitability,” the team added.
Meanwhile, City of Dreams Macau saw VIP turnover drop 27 percent, while mass market table drop declined more than 10 percent. Altira Macau’s VIP and mass table numbers were off 37 percent and 15 percent respectively.
Lawrence Ho insisted that MCE’s Q1 results “demonstrated the resilient nature” of Macau’s mass market “and the company’s commitment to cost-cutting,” reported CalvinAyre. He also said the tough times in Macau are far from over, reports the Australian.
“Macau is encountering a very tough operating environment with a combination of the slowdown of economic growth in China and government policies that may adversely affect the gaming market,” Ho said. However, he added, “We believe our business approaches are in line with the government’s new direction from a macroeconomic and social perspective.”
