A “heightened risk of severe regulatory action” has prompted Fitch Ratings to put Crown Resorts on credit watch negative for a potential ratings downgrade.
It was the second ratings agency to weigh in on the negative fallout on the operator from a series of highly damaging revelations during the course of an inquiry into its suitability to hold a license in Sydney.
Moody’s cut Crown’s issuer rating from Baa2 to Baa3 on Nov. 20th and said the company remains on review for a downgrade.
The main concern was the last minute concession from Crown that money may indeed have been laundered through its Melbourne and Perth casinos.
That revelation prompted the Independent Gaming and Liquor Authority in New South Wales to delay key permitting steps needed to be able to open its new property in Sydney.
It also triggered a request from the Victorian Commission for Gambling and Liquor Regulation to see the information submitted to the New South Wales probe.
Fitch explains that its negative ratings opinion comes from a view that “these actions highlight an increased risk of severe regulatory action being taken by ILGA, including a loss of licence, and have heightened the potential for further regulatory action by the Victorian and Western Australian regulators that would have a significant impact on the company’s business or financial profile, which would lead to Fitch downgrading Crown’s ratings.”
At present, Fitch says it believes that Crown would be able to absorb a hefty fine of about A$800 million, enabling its financial profile to remain consistent with its rating.
The company has already taken some remedial measures to set straight some of the corporate governance lapses revealed during the hearing. This includes a pledge to no longer work with junket operators.
However, that may not be enough. Counsel assisting the inquiry recommended that Crown and its biggest shareholder, James Packer, be found “unsuitable” to hold a license.
“ The risks facing Crown, and to a lesser degree Star, warrant serious consideration of a merger of the two companies.”
This has left analysts and Australian media speculating what might happen should Packer be forced to offload his 36 percent stake.
Some have argued that rival Star Entertainment might be the obvious choice for partner.
“The risks facing Crown, and to a lesser degree Star, warrant serious consideration of a merger of the two companies,” Sacha Krien from Evans and Partners was cited as saying in a piece in the Sydney Morning Herald.
The newspaper also cites Macquarie analysts as saying such a merger would create an estimated $150 million in synergy benefits and the attendant estimated lift in earnings per share of between 5 per cent and 9 percent.
In the article at least, they don’t address how antitrust regulators might view the combination of Australia’s two biggest operators.
Overall, the fallout from the inquiry into Crown Resorts’ suitability to hold a license in Sydney may have ramifications for the entire industry in Australia, including tighter regulation, Fitch Ratings said in its 2021 outlook.
Much of the focus is likely to be on the VIP market, which only accounts for about 20 percent of the operators’ business. However, prior to the pandemic and trade-tension induced slowdown, it had been the sector that casino companies had been wooing.
The Barangaroo casino was modelled as a VIP-only property, with tables only.
Anti-gambling lobbyists are already trying to turn up the heat on the sector, this time with a bill that will make them responsible to compensate victims of players who used funds obtained illegally.
Lobbyist Andrew Wilkie introduced a bill that uses the same definition of “stolen property” as the Criminal Code and puts the onus on the operator to report any cases where it suspects the use of illicit funds to AUSTRAC, the government’s financial crime agency.
“This bill will ensure that gambling entities are more accountable and will also prevent them from profiting from illegal behaviour,” Wilkie told parliament.
Jumbo signs softwares and services accord with Lotterywest
Internet online lottery business provider TMS Global Services, a wholly-owned subsidiary of Jumbo Interactive has signed an agreement with Lotterywest, the Western Australia state government-owned and operated lottery, to provide its online software platform and services for up to the next ten years. “I am pleased that the Lotterywest Agreement has now been signed on time and on terms as anticipated,” said Mike Veverka, CEO of Jumbo. “This is a major achievement for Jumbo securing our first government client setting up a solid Long -term partnership and providing strategic opportunities for Jumbo”, he said.
Star Gold Coast’s Hennessey reflects on 35th anniversary
The Star Gold Coast is celebrating its 35th anniversary since opening, with Gaming Operations Manager Steve Hennessey reflecting on the changes in the industry and highlighting how advances in technology have facilitated casino management. “Technology has made a huge difference in the way we operate, from simple things like shuffling the cards. When we first started, we had to shuffle them ourselves and now we have machines that can do it for us,” Hennessey said. “When we first opened our doors, both guests and gaming management were able to smoke whilst working on the gaming floor, something you wouldn’t hear about today!”