James Packer's Crown Resorts is facing a potential class action from investors stemming from the imprisonment of its staff in China.
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James Packer returns to Crown board
A management shake-up at Crown Resorts, after a horror run in 2016, could leave investors a little confused.
Law firm Maurice Blackburn will from Friday accept registrations from Crown Resorts shareholders interested in participating in the class action.
The suit follows a tumultuous year for Mr Packer who has recently split from his fiancé US songstress Mariah Carey and embarked on a restructure of the company's management ranks that saw Mr Packer return as a director of the group after a hiatus from the board to explore development opportunities.
Crown Resorts shares slumped 14 per cent in a single day when it emerged 18 of its employees were detained in a police sting covering several Chinese cities targeting allegedly illegal marketing of gambling junkets.
Three of those arrested were Australians including Jason O'Connor who was the vice-president of international VIP operations.
The share slide wiped more than $1.3 billion from Crown's market capitalisation, resulting in a $630 million paper loss for Mr Packer who owns a 48 per cent stake in the company with concerns centreing on the future viability of Crown's $1.2 billion Barangaroo.
The action will be funded by International Litigation Funding Partners and is expected to involve institutional investors many of whom exited the stock or reduced their holdings during the share price rout.
The amount shareholders will be seeking is at this stage unknown but it is expected to be in line with some of Australia's largest shareholder class actions which have generally been in excess of $100 million.
Maurice Blackburn Lawyers class action principal Julian Schimmel said the arrests were significant for their impact on Crown's future revenue from VIP gaming, particularly with an expected decline in VIP patronage at Crown's casinos.
"The arrests in China occurred against the backdrop of Crown's massive investment in its Sydney venture at Barangaroo, which has been spruiked as opening as a 'VIP only' casino and luxury resort in 2021," Mr Schimmel said.
Shareholders who purchased shares between June 2015 and October 14 of last year when news of the arrests was made public will be able to participate in the action.
China announced in February 2015 that it was cracking down on junket operators that were hawking entertainment tour packages because of the government's belief they were really gambling tours.
Mr Schimmel said that Crown should have known it was possible that it could run into trouble with Chinese authorities following the arrests of staff from two South Korean gaming companies marketing junkets in China in June 2015.
"Despite repeatedly making statements over a period of several years as to the significance of the Chinese VIP gaming market to the company's strategy and earnings, Crown then tried to downplay the significance of the staff arrests claiming that the Chinese VIP market only comprises a small proportion of the company's revenue," Mr Schimmel said.
Since the arrests, Crown has downplayed the amount of revenue it receives from VIP customers.
Crown told the market in October that less than half of the revenue from its VIP gaming programs is currently generated by visitors from mainland China.
"Consequently, this segment of the business represents approximately 12 per cent of the Crown Group revenues in full-year 2016," the company said at the time. Crown reported $3.6 billion in group revenue in 2016.
In December, Crown announced a $500 million special dividend for shareholders and a $300 million buyback. Shareholders who sold out in the rout will not reap the benefits of the dividend or the buy back.
Crown was contacted for comment.