Crown Resorts can shine brighter without Macau

June 16, 2016

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

Shareholders can’t wait for Crown Resorts to check out of Macau. Plans by Australian tycoon James Packer’s $6 billion casino and hotel group to demerge its international business prompted a big rally in its shares on June 16. Crown is getting more shareholder-friendly in other ways too, but the big draw is severing ties to China’s struggling gambling territory.

Crown was, justifiably, fed up that the market did not give it full credit for its high-end resorts and hotels in Australia. To correct that it will give investors shares in a separately listed vehicle holding a 27 percent stake in Melco Crown Entertainment, the Nasdaq-listed Macau casino operator. This unit will also hold other non-Australian businesses including a project in Las Vegas, a half-stake in a British group that runs several casinos, and a stake in Nobu, the Japanese restaurant chain.

Crown shares rose more than 13 percent, to A$12.74. That looks merited: analysts at Macquarie reckon the Australian business could be worth A$9.30 a share, with the international unit worth a further A$4.14 per share.

Some of this response is probably about eliminating a classic “conglomerate discount”, as Crown gets less sprawling. Other moves to become more pro-investor undoubtedly helped too. Crown plans to hike dividends, to 100 percent of net profit excluding one-offs. In addition, it might float a 49 percent stake in a tax-efficient property trust that would own its Australian hotels – a move the Macquarie team reckons could create a further A$0.93 a share of value.

But a lot of this looks like Macau-related relief. The news from there has been terrible. High-rolling Chinese gamblers are suffering the effects of a corruption crackdown and new rules to stop money-laundering will increase operating costs. Monthly gaming revenues have been falling for two straight years, albeit the declines are now moderating.

The irony is that, in the long run, Macau has worked out pretty well for Crown. It invested A$752 million in Melco Crown and got back A$1.4 billion of cash in dividends and by selling part of its stake last month, the company says. And its remaining 27.4 percent stake is still worth A$2.7 billion. That was a bet worth making – not that anyone wants to hear about it now.

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