Oct. 25 (Bloomberg) -- Billionaire James Packer’s plans for a six-star casino on the shores of Sydney’s harbor received initial backing from the government of New South Wales state, which controls gambling licenses in the city.
A hotel and casino that Packer’s Crown Ltd. gambling company plans to build at the Barangaroo site being developed by Lend Lease Group would be a “world-class tourist facility,” creating more than 1,200 jobs and resulting in investment of A$1 billion ($1 billion) in the state, Premier Barry O’Farrell said in an e-mailed statement.
The state government will carry out a financial assessment of the plan and report in the new year, O’Farrell said. It won’t allow slot machines to be part of the development and any license granted for the site wouldn’t come into effect before Echo Entertainment Group Ltd.’s exclusive license expires in November 2019, he said.
Crown and associates of Genting Bhd., the Malaysian gambling company controlled by Lim Kok Thay, have worked to boost their exposure to Sydney’s gaming market as they vie to increase their stakes in Echo, holder of the city’s only casino license. They both have shares of less than 10 percent and have applied to raise their holdings to as high as 25 percent, a level that would typically compel a takeover bid under Australian corporate law.
The state government’s decision is a “major step forward” for the hotel plan, Rowen Craigie, Crown’s chief executive officer, said in a regulatory statement after the announcement.
Echo shares fell 3.7 percent to A$3.65 at the close in Sydney, their sharpest drop in a month. Crown slipped 0.3 percent to A$9.46 while the broader S&P/ASX 200 index rose 0.1 percent.
Echo’s exclusive casino license wouldn’t necessarily be an impediment to Crown’s plans as the hotel project isn’t scheduled for completion until 2018, Larry Gandler, a Melbourne-based analyst for Credit Suisse Group AG, said in an Aug. 13 note to clients.
Echo announced plans in June to raise A$454 million to pay down debt amid a slowdown in consumer sentiment that drove a A$28 million second-half loss.
The results were a “disappointing outcome,” Chairman John O’Neill said according to a transcript of his speech at the company’s annual shareholder meeting in Australia’s Gold Coast today. Gross revenue in the first 16 weeks of the company’s financial year was up 13 percent from a year earlier and rose 28 percent at Sydney’s Star casino, even as sales at its Queensland sites fell.
“Without the opportunity for a game-changing investment, our properties in Queensland cannot and will not perform better than the markets they operate in,” he said.
Australia hasn’t built a new large luxury hotel without an attached casino in the past two decades because such projects can’t turn a profit without gambling revenues, Craigie told investors on an Aug. 10 conference call.
“The economics of building a luxury hotel in Australia of world standard, it’s just not good without cross-subsidization from gaming,” he said. “That’s why Australia’s capital cities are starved of new luxury hotels outside the casino sector.”
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