The more conservative financial profile maintained by Crown Resorts will see the Australian casino operator well positioned to absorb an expected slow start for its new AU$2.2 billion Crown Sydney project when it opens its doors later this year.
That’s the opinion of ratings agency Fitch, which affirmed Crown’s “BBB” rating on Thursday based on a more promising outlook for the company’s Melbourne and Perth properties.
While questions have been raised over the prospects for the VIP-focused Crown Sydney amid restrictions on international tourism into Australia during COVID-19 and an ongoing inquiry by the New South Wales state gaming regulator over Crown’s suitability to retain its casino license, Fitch said the company has positioned itself to ride out some tough times.
“Fitch believes that Crown showed its commitment to maintaining its balance-sheet strength by the skipping of a final dividend, despite its fixed dividend policy, and the securing of over AU$1 billion in additional debt facilities at the beginning of the pandemic to manage through the disruptions and to meet its obligations, including the completion of Crown Sydney,” Fitch said.
“Crown’s ability to absorb the effects of the shutdowns, continue funding the construction of its Crown Sydney property, and return its leverage to within the guidelines for its rating within one year benefitted from the conservative financial profile it maintained since it exited its international businesses.
“This headroom will also allow Crown to absorb the expected slower start at its Sydney premium casino as VIP demand remains subdued given restrictions on international travel and the recession in Australia over the next couple of years.”
Although Crown Sydney’s reliance on high-end foreign visitation poses a risk in the current climate, Fitch said the company will benefit in the short-term from the fact that its Melbourne and Perth operations are domestically-focused.
Notably, both properties have reduced their reliance on VIP business since the arrests of 16 Crown Resorts employees in mainland China in 2016.
“Border restrictions in place to combat COVID-19 will see VIP revenues remain low over the foreseeable future. Nevertheless, this volatility has minimal effect on the group’s overall results, because VIP revenue made up less than 25% of normalized group revenues from FY16,” Fitch said.
“We believe Crown’s Melbourne and Perth properties … will continue to benefit from predictable local markets and Crown’s position as each region’s sole licensed casino operator. The properties generated stable cash and EBITDA in the past decade, with persistent weakness in Perth’s mass-market demand offset by higher mass-market demand in Melbourne prior to the pandemic.
“We expect the Melbourne property (closed since March) to generate a significant share of its usual domestic gaming revenue once it reopens. This is despite social distancing measures, which is consistent with the performance of other casinos in Australia, including Crown Perth, which reopened in late June 2020.”
Fitch did not mention the ongoing NSW inquiry.
