Australian casino company Crown sold its 10 per cent stake in rival Echo Entertainment Group, signalling billionaire owner James Packer is confident of winning approval for a high-roller casino in Sydney.
Echo has exclusive rights until 2019 to the city’s single casino licence and Crown’s stake was widely viewed as an insurance policy to grab a slice of the lucrative Asian gambling market in case its own plan to build a A$1 billion (HK$7.52 billion) hotel and VIP gaming suite was rejected.
Crown said on Friday it had decided to pursue its so-called Barangaroo development on Sydney’s waterfront, free of the speculation surrounding its Echo shareholding.
“Crown Sydney is a once-in-a-lifetime project for our company,” Packer said in a statement. “We are working as hard as we can to make this goal a reality.”
Crown sold its 82.56 million shares for A$264 million (HK$1.98 billion) at A$3.20 per share, a 7 per cent discount to the stock’s closing price on Thursday.
Echo shares, which had been supported by speculation of a possible bidding war, plunged to a record low of A$3.03 when trading resumed. They last traded at A$3.09, down 10 per cent.
The New South Wales state government has given both Crown and Echo until June 21 to deliver final details on their competing proposals for major gambling venues in Sydney.
In an attempt to thwart Crown’s plans, Echo is seeking an extension of its exclusive licence beyond 2019, promising investment in local transport as part of an expansion of its existing Star casino at Darling Harbour.
The state government has said that only one of the proposals can go forward, meaning that either Crown receives a second licence or Echo remains the sole gambling operator with a single licence.
“I would take this as an indication that Crown’s confidence that they will secure Barangaroo (approval) has increased, and therefore they don’t need a back-up plan in holding the Echo stake,” Nomura gambling analyst Nick Berry said.
The timing of the sale caught the market by surprise, coming just a couple of weeks after Crown received approval it had sought from the government to increase its stake in Echo to as much as 23 per cent.
But CLSA analyst Sacha Krien said the stake was always likely only a strategy in Crown’s broader game plan, and it was never seriously interested in the mass gambling market that Echo’s Star is targeting.
“For Crown, it’s Barangaroo or nothing in Sydney,” Krien said.
As well as Crown, Echo has been courted by companies associated with Malaysian gaming giant Genting as Sydney grows increasingly popular with Asian gamblers.
Genting, through Genting Singapore, unexpectedly cut its stake in Echo last September, giving no reason, but still holds about 5 per cent of Echo shares through its Genting Hong Kong unit.
Genting has also applied to increase its stake above 10 per cent. The state’s gaming authority has yet to rule on that application and has given no timeframe for a decision.
However, Nomura’s Berry said Genting was unlikely to want to invest further in Echo.
“You can’t get a return above your cost of capital, because Echo’s return on invested capital is already so low,” he said. “Genting Hong Kong won’t acquire Echo, and quite possibly they will sell off the register before too long as well.”
But he said Echo had enough cash flow to fund its planned projects, including the expansion of Star.