Ratings agency Fitch has maintained its Rating Watch Negative (RWN) and “BBB” Long-Term issuer Default Rating on Australian casino giant Crown Resorts, citing concerns over the findings of Royal Commissions currently underway in its key markets of Melbourne and Perth.
The negative view comes despite Fitch predicting a recovery in the company’s earnings capacity – including a 15% increase in revenue in the 12 months through 30 June 2022, another 50% in FY23 and 10% in FY24 – due to the expected reopening of Crown Melbourne later this year. Crown’s Melbourne flagship was closed for 160 days in FY21, resulting in a 31.3% year-on-year decline in. revenue to AU$1.54 billion (U$1.13 billion) and a loss of AU$261.6 million (U$191.2 million).
While the long-term prospects remain promising, short-term Fitch remains concerned by heightened regulatory risks including the prospect of Crown having its gaming licenses in Melbourne and Perth suspended. The company’s license for Crown Sydney has already been suspended pending the outcome of negotiations with the New South Wales regulator.
“Fitch put Crown on RWN in November 2020 on the increased regulatory risks the company is facing, which could have a significant impact on the business or financial profile,” it said.
“The inquiries into its legal, regulatory and licensing compliance, including anti-money laundering, indicate weaknesses in its risk management, internal control structures and board oversight. The RWN captures the escalating regulatory risks, highlighted by the deferment of the opening of Crown Sydney’s casino and it being deemed unsuitable to hold a gaming licence in Sydney, as well as the royal commissions into its suitability to hold a licence in Victoria and WA.
Crown’s measures to address its deficiencies highlighted by the NSW inquiry include forming a compliance and financial crime department that reports to the board, and ceasing dealings with all junket operators. A review of its structural changes and a financial audit is ongoing as part of its ILGA remediation measures. The royal commission in Victoria is scheduled to end in 2H21 and the one in WA in 1H22.
“Our governance structure view will turn positive only upon successful implementation of all the regulators’ measures. Fitch will resolve the RWN once the outcomes of the regulatory actions are known and we have assessed the impact on Crown’s operations and financial profile.”
Counsel assisting Victoria’s Royal Commission recently asked Royal Commissioner Ray Finkelstein to find Crown unsuitable to retain its license for Crown Melbourne. Finkelstein is due to hand down his recommendations by 15 October.
