Crown shares suffer after Chinese detentions

Crown shares suffer after Chinese detentions

Tuesday, October 18, 2016 Posted by Totally Gaming
Employees arrested on charges of promoting foreign gambling

Shares in the Sydney-listed Crown Resorts tumbled 14% in trading on Monday after the company confirmed that 18 employees, including the executive vice-president of international VIP, had been arrested by the Chinese authorities.

The 18 were detained on charges related to the promotion of gambling at foreign casinos in a move that is interpreted as being part of the Chinese government’s anti-corruption drive.

The detentions follow on from similar moves last year which saw the arrest of 13 South Koreans and over 30 Chinese nationals on similar charges.

The news also hit the share prices of fellow Australasian gaming entities Sky City Entertainment and Star Entertainment while the six Macau operators also saw their stocks suffer.

Crown Resorts said in a statement it had not yet been able to speak to its employees and was working closely with the Australian Department of Foreign Affairs and Trade to ascertain their welfare.

Analysts were quick to play down the arrests and the effect they might have, with Union Gaming’s Grant Govertsen saying the share sell-off was “unjustifiable” and suggesting these arrests were somewhat “business as usual”.

“Historically it has, more often than not, been the Korean casino operators whose marketing teams have been arrested or detained (although not limited to Korean casinos), with three heavily publicised incidents over the last four years,” he told clients in a note published on Monday.

Furthermore, he noted that there had apparently been many more arrests made over the years that had not been reported, and hence the disruption to the business models and revenues has been minimal.

Over at Morgan Stanley, the team suggested the news could push casinos to relay even more on junket operators versus the direct marketing channel. They said that this might see another rebalancing between Macau and other regional casino hubs.

“Macau companies generate circa 50% of gross gaming revenue and circa 20% of EBITDA from the VIP segment, but more than 80% of this is done through junkets,” they added. “Premium mass hosts may be more careful in the near term, but we do not expect meaningful impact on revenue.”

In the example of the South Korean arrests last year, none of the foreigner-only casinos any longer markets directly into China and Chinese visitors has dropped at both Paradise and GKL by 30%. Their focus is now on Japanese visitors and local VIPs in South Korea holding foreign passports.

Govertsen said Macau would be a beneficiary of this new uncertainty. “At least in Macau it is easier for the central government to monitor the market,” he said. “As non-Macau companies shy away, albeit perhaps temporarily, from VIP this should generally accrue to Macau's benefit.”

Totally Gaming says: These arrests emphasise the degree to which official attitudes towards gaming in China remain complicated. Although Macau is now apparently back on a growth path, analysts and commentators are more than aware of the ability of the Chinese authorities to throw a spoke in the wheel. This is just one more example that will be keeping both Macau-based and other regional casino operators on their toes.

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