GAMING | Packer’s USD4b Vegas bet fuels Crown risk

The logo for Crown Towers, operated by Melco Crown Entertainment Ltd., is displayed atop the building in Macau

The last time billionaire James Packer bet on Las Vegas’s casino industry he lost A$1.37 billion (USD1.28 billion). Bond risk on his Crown Resorts Ltd. has risen to a five-month high as he prepares to spin the wheel again.
Crown is the worst performer in the iTraxx Australia index of credit-default swaps in the past three months, with contracts climbing to 124 basis points Aug. 5. The Melbourne-based company said a day earlier it had paid USD280 million for a 34.6 acre (14 hectare) site on the Las Vegas Strip to build a new casino in a venture with former Wynn Las Vegas LLC President Andrew Pascal.
The latest plan lifts Crown’s projected spending on resorts due to open by 2020 to about $10 billion, according to Credit Suisse Group AG. The Nevada complex alone could cost as much as $4 billion, Deutsche Bank AG said. The investments will deplete cash as gambling growth in Macau, where Crown has a stake in the City of Dreams casino, is poised to slow.
“The Las Vegas land purchase further reinforces the company’s aggressive growth strategy and may weaken credit metrics,” Raymond Lee, who helps manage about A$7 billion at Kapstream Capital Pty in Sydney, said. “This new project will likely result in significant capital spending in addition to the existing projects.”
Packer, who is Australia’s second-richest man and Crown’s chairman and 50 percent controlling shareholder, has ridden an Asian consumer boom since the company’s December 2007 listing. His is now the world’s only gambling company judged investment grade by all three major ratings companies, with a BBB rank at Standard & Poor’s and Fitch Ratings Ltd. and Baa2 at Moody’s Investors Service.
Crown owns part of the City of Dreams in Macau through its 34 percent stake in Melco Crown Entertainment Ltd. and also targets Asian high rollers traveling to Australia. So-called VIP gamblers’ losses accounted for about 27 percent of its revenue in fiscal 2013, with A$50.7 billion of such bets wagered in Melbourne and Perth, according to the company’s latest annual report.
“We see the announcement as a potentially negative development for the credit,” Gus Medeiros, a credit strategist at Deutsche Bank, said in an Aug. 5 note about the purchase, citing “uncertainty around the related capex, which will add to the ongoing sizeable project pipeline.”
Crown’s previous major U.S. forays were costly. Writedowns and charges tied to five Las Vegas investments, including the derelict Fontainebleau hotel, came to A$1.37 billion in 2008 and 2009, according to a company presentation.
Alongside the U.S. project, Crown has promised to spend A$1.3 billion on a casino hotel in Sydney to open in 2019 and is working on projects in Brisbane and Sri Lanka. Melco Crown is studying new resorts in the Philippines and Japan and building a Zaha Hadid-designed hotel tower in Macau scheduled to open in 2017.
The new venues could cost as much as $10 billion, with Crown sharing the outlay through partnerships and associated property sales,  according to Larry Gandler, a Melbourne-based analyst at Credit Suisse.
Crown has A$300 million of July 2017 bonds outstanding and A$532 million of hybrid notes, data show. To be sure, the flood of money into Macau’s casinos gives Packer a ready source of funds.
Quarterly gaming revenues there have risen more than four-
fold since Crown listed to peak at 102.5 billion patacas ($12.8 billion) in the three months to March. That compares with the $9.68 billion Las Vegas casinos made in the whole of 2013, according to Bloomberg Intelligence data. Bloomberg

David Fickling and Benjamin Purvis