Fitch: Crown Moving to Stage 3 Over Echo

Mon Jul 8, 2013 2:22am EDT

(The following statement was released by the rating agency) SYDNEY, July 08 (Fitch) Fitch Rating says that Crown Limited (Crown, BBB/Stable) is likely to see an improvement in its business and risk profiles, with long term diversification benefits, if it is successful in reaching agreement with the New South Wales (NSW) government to build a six-star hotel resort including VIP gaming facilities at Barangaroo South. However, any impact on Crown's rating will also need to reflect the funding structure, which has not been finalized at this stage. Nevertheless, when considering the company's likely future capex profile including this project, along with its strong cash flow from operations (CFO) generation and borrowing capacity under existing facilities, Fitch does not expect any material increase in new borrowings. Crown's proposal to build a 60-storey hotel at a prime Sydney CBD water-front location will include 350 rooms and 120 gaming tables. There will be multi terminal gaming machines but no slot machines. The focus of the property is to drive growth in VIP programme play. Fitch notes that Crown Melbourne currently captures the greater share of the VIP market and as such Crown Sydney is well positioned to benefit from Crown's existing relationships from its properties in Macao, Melbourne and Perth. However, Fitch cautions that unlike Crown's Melbourne and Perth properties, Crown Sydney will face greater competition and consequently operating margins will potentially come under pressure for both Crown and rival Echo Entertainment Limited (Echo). Echo holds an exclusive license to operate a casino in NSW until 2019, and was hoping the government would approve its AUD1.1bn expansion proposal instead of allowing Crown to enter the market. Fitch also cautions that Crown could be exposed to near- to medium-term execution and development risk with sizeable capex. Although details of the funding structure are not yet known, the construction of the project will be phased over a 42-month period from 2015. The fact that this project will be sequential to Crown Towers Perth will, to a certain extent, allow Crown to manage the execution of the project and provide some buffer to free cash flow generation. Aside from the amount of debt used to fund the project, Fitch will, in assessing the rating impact, also consider timing of dividends from Melco Crown Entertainment and any other major developments in Australia or offshore that Crown might consider. Crown announced that it had been invited by the NSW government to move to stage three of the unsolicited proposal process for a six star hotel resort in Sydney. An independent steering committee, with the assistance of Deloitte Access Economics, assessed proposals from Crown and Echo. The independent steering committee determined that while both proposals offer value to NSW, allowing casino competition in Sydney would deliver increased tourism and broader economic benefits for NSW. Contact: Vicky Melbourne Senior Director +61 2 8256 0325 Fitch Australia Pty Ltd., Level 15, 77 King Street Sydney NSW 2000 Johann Kenny, CFA Director +61 2 8256 0348 Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: iselle.gonzalez@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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