The Crown Resorts Ltd (ASX: CWN) share price is trading higher today despite receiving a downgrade by ratings agency Fitch Ratings. Fitch has placed Crown Resorts’ BBB rating on ‘rating watch negative’, after the NSW gaming authority delayed the December opening of Crown’s Sydney casino until February 2021.
However, the Crown Resorts share price was up 5.93% at $10.19 in closing trade. Could shares in the company be buoyed by the opening of its Melbourne casino today?
Why Crown Resorts has been downgraded
Fitch Ratings said the downgrade reflected its opinion that the Sydney opening ban highlighted an “increased risk” of severe regulatory action being taken by the Independent Liquor and Gaming Authority (ILGA). The ratings agency said this risk could potentially include a loss of licence.
According to Fitch, the ban in NSW has also heightened the potential for further regulatory action by the Victorian and Western Australian regulators. That possibility would have a “significant” impact on Crown’s business, the company says.
Fitch’s downgrade follows the steps of Moody’s Investors Services on 20 November, when it downgraded the issuer rating of Crown Resorts from Baa2 to Baa3. Moody’s also said that ILGA’s decision to delay the Sydney opening was instrumental in its decision to downgrade.
In response to the Moody’s downgrade, Crown advised the ASX on Friday that interest costs associated with its Euro Medium Term Notes would subsequently lift by about US$1 million per annum.
What issues has Crown been facing
Crown Resorts has been on the regulator’s radar after it was revealed that the casino paid illegal junket operators to attract high rollers from mainland China. These accusations have been investigated by AUSTRAC, the Australian government intelligence agency set up to monitor money laundering, organised crime, and fraud.
It is alleged that junket operators based in Macau and Hong Kong are suspected to have links with Chinese organised crime groups. Known as triads, they in turn are said to provide the junkets with capital, protection, drugs, prostitutes and debt collection services.
In response to allegations, Crown has suspended all junket relationships until mid 2021. The ongoing inquiry into Crown’s dealings will decide whether Crown is fit to hold a license in NSW.
How did the Crown share price perform in 2020
The Crown Resorts share price has dropped by 15% in 2020. The share price began the year at $12.04 before dropping to $6 as the Government put COVID-19 lockdown restrictions in place. It has since risen to $10.19 today. The company commands a market cap of $6.5 billion.
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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Crown Resorts Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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