Artistic Rendering Crown Sydney
Revenue results have been mixed for Crown Resorts‘ casino properties lately. Those based in the company’s home territory of Australia have thrived, while international properties – specifically those in Macau – have taken a turn for the worse. To fix the problem, owner James Packer is splitting Crown Resorts into two companies in a rare reverse merger.
The original Crown Resorts Limited will maintain ownership of its home-base casinos in Australia, including Crown Melbourne, Crown Perth and the Crown Sydney that’s currently in development. It will also sustain the operation of the immensely successful Crown Aspinalls in London, England, as well as all of its online gambling endeavors.
The impending property trust will gain control of Crown’s less lucrative – dare we say failing – casinos in Macau and Manila. These include three properties in the Chinese gambling mecca, Altira Macau, City of Dreams Macau and Studio City Macau, along with City of Dreams Manila.
Crown Investors Holding All Aces
Crown announced the move on Wednesday, confirming it’s intentions to split up its international and Australian casinos. The idea is to maximize shareholder value for Crown Resorts Limited by eliminating the burden caused by the flagging casino industry in Macau.
“We believe that Crown Resorts’ extremely high-quality Australian resorts are not being fully valued and the Crown Resorts share price has been highly correlated to the performance of its investment in Macau,” read a statement from Robert Rankin, Chief Executive of Crown Resorts.
“The proposed demerger reflects the different nature of Crown Resorts’ controlled Australian operating assets,” he said. “It will provide investors with greater investment choice and transparency.”
As for the future of the brand’s Macau casinos, Ranking said the demerger isn’t intended as a means of dumping off the company’s less-lucrative assets.
“Crown Resorts continues to have great faith in the long-term development of the Macau market,” he explained, adding that “Macau remains the world’s most important and exciting gaming market.”
Analysts Not Convinced
In the meantime, Moody’s investment rating service began scrutinizing the value of Crown Resorts on Monday, considering a potential downgrade.
“The proposed demerger and increased dividend payout ratio will reduce retained cashflow and the company’s asset base materially, which is credit negative for Crown and prompted us to put its ratings (Baa2) on review for downgrade,” Moody said this morning.
While the investment firm believes the split will reduce Crown Resorts’ diversification, such a move would be partly mitigated by the strengthening of it’s core assets – the casinos in Australia and London, and all of its online gambling operations; in particular, the highly successful Crown Perth and Crown Melbourne operations.
Moody projected that dividends from the new property trust will recover following the segregation, but also noted that Crown will have notably less internal funding sources to draw from for the completion of it’s latest $2 billion Australian casino project in Sydney, which has already suffered delays.
Following news of Moody’s potential downgrading, share prices in Crown rose $0.10 to $13.00.