James Packer may be a billionaire, but he can’t seem to buy a break in Las Vegas.
This week, Credit Suisse analysts warned that investor interest in Australian casino operator Crown Resorts’ Alon project appears to be waning, making it more difficult for Crown to raise the $1.9b the Nevada resort casino is expected to cost.
Crown holds a 74% stake in the Alon project but Credit Suisse said Crown hoped to reduce that figure to 45% by raising $425m via an equity issue to new investors. Trouble is, Crown has pitched Alon as a playground for Chinese VIPs and investors aren’t convinced that this demographic actually exists anymore. Credit Suisse said the equity round “seems to be taking longer than we thought.”
The inability to raise fresh capital could impact Crown’s debt-to-cash-flow ratios, which could cause ratings agencies to downgrade the company’s debt. Earlier in the week, Bloomberg reported that Crown’s bond risk had risen 42 basis points over the past three months to 213, the worst showing by any company in the 25-member iTraxx Australia index of credit default swaps. In November, Crown’s risk rating hit a high the index hasn’t seen since 2009.
Crown’s debt rose 47% to A$2.5b in the company’s most recent fiscal year thanks to its development pipeline, which includes the $2b Crown Sydney project in addition to Alon. Crown also holds a one-third stake in Melco Crown Entertainment, which just opened its $3.2b Studio City resort in Macau to a mixed reception.
The Macau market’s 18-months-and-counting revenue decline did a number on Crown’s recent fiscal year, during which the company’s share of Melco Crown’s profits fell over 57%. With no end in sight for Macau’s slump and pricey projects to finance, Crown investors are expecting downward pressure on margins for the foreseeable future.
Packer certainly hasn’t had much fun in Vegas, at least in terms of establishing a casino footprint. Packer lost $279m after his never completed $2.9b Fontainebleau Las Vegas project went bankrupt following the 2008 global economic crisis. Here’s hoping Alon isn’t a case of déjà vu all over again.