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Australia – Fitch backs Crown to weather the early VIP storm at Crown Sydney

By - 24 September 2020

Ratings agency Fitch believes that Australian operator Crown Resorts will be able to weather a slow start to business at its AU$2.2bn Crown Sydney VIP casino in Barangaroo, due to open in December 2020.

“Fitch believes that Crown showed its commitment to maintaining its balance-sheet strength by the skipping a final dividend, despite its fixed dividend policy, and the securing of over AU$1 billion in additional debt facilities at the beginning of the pandemic to manage through the disruptions and to meet its obligations, including the completion of Crown Sydney,” it said.

“Crown’s ability to absorb the effects of the shutdowns, continue funding the construction of its Crown Sydney property, and return its leverage to within the guidelines for its rating within one year benefitted from the conservative financial profile it maintained since it exited its international businesses.
“This headroom will also allow Crown to absorb the expected slower start at its Sydney premium casino as VIP demand remains subdued given restrictions on international travel and the recession in Australia over the next couple of years.”

“Border restrictions in place to combat COVID-19 will see VIP revenues remain low over the foreseeable future. Nevertheless, this volatility has minimal effect on the group’s overall results, because VIP revenue made up less than 25 per cent of normalised group revenues from FY16,” Fitch added. “We believe Crown’s Melbourne and Perth properties will continue to benefit from predictable local markets and Crown’s position as each region’s sole licensed casino operator. The properties generated stable cash and EBITDA in the past decade, with persistent weakness in Perth’s mass-market demand offset by higher mass-market demand in Melbourne prior to the pandemic.

“We expect the Melbourne property (closed since March) to generate a significant share of its usual domestic gaming revenue once it reopens. This is despite social distancing measures, which is consistent with the performance of other casinos in Australia, including Crown Perth, which reopened in late June 2020.”

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