On Thursday morning the board of Crown Resorts will be in the firing line. The shareholders, who will assemble before them at the company's annual meeting in Perth, will be looking for answers, having watched more than 10 per cent wiped off the value of their shares this week. But its largest shareholder, James Packer, won't be sitting on the stage and taking the investor heat.
Crown is now a company in crisis – its entire China-based workforce is in detention and its Chinese customers' details are in the hands of authorities following the police seizure of company laptops.
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Before facing investors, directors will have held their Wednesday evening board meeting – a gathering that will more closely resemble a war room strategy session than a usual update of first-quarter trading conditions and consideration of the accounts.
It will be a mettle-testing time for the board, who bear the ultimate responsibility for the operations of the company and its behaviour.
Top of the list of questions will be why Crown was targeted by the Chinese authorities and did the company's employees break the law?
It's a question that the directors will find difficult to answer. James Packer released a statement this week saying he was "respectful, that these detentions have occurred in another country and are therefore subject to their sovereign rules and investigative processes".
The last thing Crown will wish to do is be seen to be undermining or upsetting Chinese authorities, but it must also be looking out for the welfare of its 18 staff now sitting in jail. The company has engaged Chinese and Australian lawyers to represent its workers, but perhaps it's time for Packer to take leadership on the issue and fly into the Shanghai hot zone.
Shareholders will understandably want to know whether Crown was being too aggressive in marketing Australian casinos to Chinese nationals or whether the company was a scapegoat for the many international casino operators that see China as a growth market.
![James Packer released a statement saying he was 'respectful, that these detentions have occurred in another country and ...](/web/20161022205031im_/http://www.canberratimes.com.au/content/dam/images/g/s/3/l/n/9/image.related.articleLeadwide.620x349.gs5qpg.png/1476906890224.jpg)
Those investors more concerned with financial performance will be wanting to know whether the company has permanently blown up 25 per cent of its revenue that comes from Chinese VIP players.
The trouble is that the management and directors don't know the answer to this. If Crown is the tip of the iceberg in a broader systemic crackdown on gambling and the money laundering it can enable, then the Chinese VIP market may ultimately disappear for international casino groups, including those in Australia.
![Crown Resorts has bet the house on high rollers.](/web/20161022205031im_/http://www.canberratimes.com.au/content/dam/images/g/p/t/o/9/h/image.related.articleLeadwide.620x349.gs5qpg.png/1477027635892.jpg)
Analysts have been quick to use the experience of South Korean casino operators – who were the subject of similar raids by Chinese officials 18 months ago – as the precedent. In the South Korean case, VIP turnover out of China fell by around 30 per cent in the year following the raids.
But the board should be able to update shareholders on what has happened to Chinese VIP forward bookings over the past week.
What the board should be able to talk about is the progress of Crown's plans to demerge its operations into two companies – one that holds the Australian assets and another that contains most of the international investments.
This restructure, announced four months ago, triggered a massive positive re-rating of the stock. However, undertaking this radical corporate overhaul will be more difficult thanks to the earnings uncertainty resulting from the raids, although the events in China this week are unlikely to be a deal breaker for the demerger.
Given the directors have no forecasting clarity around the VIP Chinese market, another pressing question for the board is what this week's events could mean for the $2 billion investment in the Barangaroo casino project in Sydney. This development will include a hotel and apartments, but its real financial viability rests with the casino, which is relying more heavily on the VIP market.
Indeed, approvals from the NSW government were granted on the basis that this would be a VIP venue – a tourism booster rather than a place for mass market locals to lose money on pokies. (It won't even have poker machines.)
There are now so many question marks around Crown that investing in its shares represents as much of a punt as rolling a dice at the tables.
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