[VIDEO ANALYSIS] How will the Crown Hybrids be impacted by recent Chinese government crackdowns?

William O'Loughlin:

Okay, on to the next question.

 

 

Kim from New South Whales asks "I watched the Four Corners programme about Crown Casinos on Monday night. Seems that business in China and Australia will be badly effected by the Chinese government's crackdown on gambling by the high rollers. How do you think this will effect the share price and the price of the Crown hybrids in the long run?"

 

Shannon Rivkin:

Good question Kim. And I didn't watch the Four Corners Programme, but I know Crown intimately and certainly have been following everything since the arrest of the employers in China. I guess the main thing is that the concern for Crown is kind of being minimised by the announcements that have come out since. And probably the main one being that they have solved a massive chunk of their Macao exposure, and have basically deleveraged the balance sheet dramatically.

 

 

And that's brilliant news for the Crown hybrids because the less debt that the Crown has, and the more exposure, I think, to it's higher quality, lower risk assets like Crown Melbourne, the better. There are obviously very reliable contributors, and to some degree, recession proof as well. And we always say new casinos are largely recession proof. They do still have exposure to high roles. Obviously, Crown Melbourne, Crown Perth, do have high roller contribution, but say that City Group came out with an estimate of only 4% of revenues in those casinos were from high rollers. So Look, even if that goes to zero, it's a shame, but it's certainly not a disaster for the companies.

 

 

I think, probably the biggest concern is that Crown is building Crown Sydney, and growing that was suppose to be the attraction for high rollers. But, that's still years away and I think it's such an incredible part of the city, and a team, I guess, that really have a long history of success in this sort of, in casinos and entertainment that, if they're concerned about the impact from VIPs, then I think they'll be able to adjust, and make it more a mass market appeal.

 

 

So, I'm not concerned what so ever, and even so, even if Crown Sydney wasn't as exciting as what it may have been, and the returns are going to be lower, the balance sheet is now comfortable enough where I don't think it's a concern what so ever for Crown, for the Crown hybrids. And I should say as well, the Crown hybrids are due to be redeemed in 2021 anyway, so we won't really see the negatives of a big mistake with Crown Sydney by the time we see them redeemed anyway. So, very comfortable with their position in the markets, finally agreeing with us. And they're, after the most recent interest payment, at about 96.50, which almost back up to face value.

 

 

So, brilliant for anyone who was able to buy at lower levels, as it went to crazy low levels, and for anyone who bought at the beginning and continue to get our interest payments. It's proving to be what we expected at the beginning before the hiccups.

 

Complex product warning

This article contains information about hybrid securities, which are considered complex financial products. Please click here to read the ASX's "Understanding Hybrid Securities" document before considering an investment in hybrid securities. 
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