Barangaroo victory pushes Crown shares higher
Crown shares have jumped higher after the NSW government gave James Packer's Crown approval to go to the next stage in developing his plan for Sydney's Barangaroo site.
A bid by the company to build a $1.5 billion luxury resort and VIP-only casino on the city's harbourside has been favoured by the NSW government, ahead of a $1.1 billion bid from rival casino operator Echo Entertainment.
The controversial deal will grant $1 billion in taxes and licensing fees to the state government in the first 15 years of the project, which would feature gaming tables and electronic tables but no poker machines.
Crown shares, which came out of a trading halt on Friday, lifted 39¢, or 3.49 per cent, to close at $12.60. Shares in Echo Entertainment plunged 5.15 per cent, or 15¢, to end the day at $2.76.
Mr Packer does not yet have a licence for the six-star venue but is now able to move to the final stage of the development approval process.
Echo is now unable to proceed with its own planned $1.1 billion expansion of The Star, and from 2019 is likely to face stiff competition from Crown for the VIP market, the most lucrative part of a casino's business.
A government-appointed panel found Crown's proposal would contribute $442 million a year to the state's gross domestic product through taxes and licence fees, more than Echo's plan.
Echo said it was disappointed with the decision, but was determined to press on in growing and realising value from The Star.
The casino still held an 80-year licence term, including another six years of exclusivity in Sydney, Echo chairman John O'Neill said in a statement.
A delighted Mr Packer said: "Sydney is one of the world's great cities; it deserves one of the world's great hotels. I want this building to be instantly recognisable around the world and feature on postcards and memorabilia promoting Sydney."
The NSW government's invitation to Crown to move to stage three of the unsolicited proposal, and hence the knock back to Echo's proposed billion dollar redevelopment of its site, means Mr Packer is close to his dream of having a truly national Crown casino franchise.
If ultimately successful, Crown Sydney at the Barangaroo would join the billionaire's flagship Crown casino in Melbourne, Crown Perth and plug into an international network through Crown's investments in Macau and London casinos.
Citi analyst Michael Goltsman said Crown's proposal would likely push Echo out of the Sydney VIP market.
"While the market is under-penetrated and there is scope for growth, cannibalisation for Echo will be hard to avoid," he said.
Standard & Poor's Ratings Services said there was no immediate impact on its triple-B rating or stable outlook on Crown.
"Our base-case forecasts indicate that Crown would be adequately positioned to fund the proposed development from internally generated cash flow and debt without materially affecting the 'BBB' credit profile," the agency said.
"We expect Crown to be well positioned to maintain fully adjusted debt to EBITDA below three times in the next three to five years, in line with expectations for the rating."