The Australian state of Victoria recently fined Crown Resorts AU$80 million (US$57.5 million) over its willful misuse of the China Union Pay (CUP) card system. Fitch Ratings weighed in on the casino operator’s status following the order, indicating that it won’t have much of an impact.
Crown’s financial strength has enabled it to weather the COVID-19 crisis, which included a shutdown of operations. It has also allowed it to survive after New South Wales (NSW) suspended its license. Not even a shareholder settlement for AU$125 million (US$89 million) is enough to shake it from its foundation.
Fitch, which said this past February that the operator could see a “multi-notch downgrade” following the sale to Blackstone, sees a slightly different scenario now. It points out that Crown has a protective “buffer” that enables it to accept regulatory fines with only little damage.
The credit rating agency said the latest fine in Victoria will raise Crown’s FFO (funds from operations) adjusted net leverage by 0.2X – 0.4X. This is well below the 3.0X level at which the firm would take adverse ratings action, it added.
More Penalties For Crown Possible
Fitch added that it is more concerned with the group’s capital structure in the long term after Blackstone’s takeover. Although the offer has been approved by shareholders, it still needs to clear Australian regulatory hurdles.
The latest Crown fine is unlikely to negatively impact the sale because it falls below the material adverse clause in the agreement between Crown and Blackstone, Fitch explained. Before it goes into effect, the agreement establishes a minimum reduction of Crown’s net assets of AU$750 million (US$537.82 million) for certain items.
However, Crown has advised that the Victorian Gambling and Casino Control Commission (VGCCC) may hit it with more fines. The regulator could take further punitive measures in response to findings from the Royal Commission inquiry.
These could include fines of up to AU$100 million (US$71.76 million) each. The Australian Transaction Reports and Analysis Center (AUSTRAC) is also investigating the company.
Crown’s CUP Runneth Over
Monday’s announcement by the regulator stated that there were at least 2,769 instances of illegal use of CUP cards by Crown. The total value of these transactions was AU$163 million (US$116.87 million). If the VGCCC wanted to, it could fine Crown for each instance.
Crown reportedly earned revenue of around AU$34 million (US$24.37 million) through the illegal transactions. The company, as well as Star Entertainment, manipulated the CUP system to allow VIPs to continue to gamble after China banned its citizens from sending more than US$50,000 abroad. In the first half of 2019, around $131 billion left the country through illegal transactions.
The report stated that Crown Melbourne executives knew about the Chinese currency restrictions. The VGCCC stated that the practice didn’t only involve CUP cards. In addition to those, gamblers could also use Visa, Mastercard and American Express cards.
Crown has lost virtually its entire upper echelon of leaders, replaced by new personnel hoping to right the ship. It has paid hundreds of millions of dollars in fines and lawsuits, with more of both pending.
The Blackstone acquisition could potentially be just weeks away. However, Crown is at the center of an unstable situation that can still spin out of control. Therefore, Blackstone has to be ready to weather whatever storms arrive.
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