Sky City shares drop after Crown staffers detained in Macau

While not directly linked to Crown, Sky City Entertainment has put a lot of emphasis on its the high end, VIP market, with many of its high rollers coming from China where gambling - aside from Macau - is illegal.

Shares in casino company Sky City Entertainment were sold down today on concerns about the lucrative "high roller" VIP market following the arrest of key Crown Resorts executives by Chinese authorities in Macau late last week.

In a short statement, ASX-listed Crown Resorts - which is just under half owned by Australian billionaire James Packer - said it believed that Crown's executive vice president VIP international, Jason O'Connor, was one of 18 Crown employees who had been detained by Chinese authorities at the southern coastal city.

In Australia, Crown Resorts shares dropped by A$1.24 at A$11.71 in reaction to the news while Sky City dropped by 20c to $4.44, having earlier fallen to $4.34.

"To date, Crown has not been able to speak with its employees and is working closely with the Department of Foreign Affairs and Trade to urgently make contact with and ascertain the welfare of its employees," Crown said.

Australian media said Chinese authorities have not confirmed the arrests but they come amid a crack-down on corruption and money laundering in the former Portuguese colony.

While not directly linked to Crown, Sky City Entertainment has put a lot of emphasis on its the high end, VIP market, with many of its high rollers coming from China where gambling - aside from Macau - is illegal.

Matthew Goodson, managing director of Salt Funds Management, said much of Sky City's future growth rested on its high-end business.

"Clearly the arrest of Crown executives is a potential risk," he said. While there was no evidence of any direct impact of the incident on Sky City, he said there could be if it meant there had been a change in China's attitude towards high rollers.

New Zealand and Australian casinos are a popular destination for Chinese VIP gamblers.
"It's what it might mean for Sky City and the VIP business in terms of the Chinese government's policy towards this space," he said.

"Given that much of the growth in Sky City is mooted to come from VIPs, if there was to be a slowdown in Chinese VIP gambling then it would certainly have an impact for them," he said. China has a history of periodically cracking down on gambling in Macau.

At its last result, Sky City, commenting on its international business, said:

"Growth continues to be supported by increased recognition of our service offering amongst Asian VIP customers, continued focus on direct relationships and increased play at higher table differentials."

Craig Stent, executive director at Harbour Asset Management, said about 9 per cent of Sky City's earnings before interest, tax, depreciation and amortisation, comes from the international VIP side of the business, and 16 per cent of its revenue.

"Clearly there are implications for the high rollers who may decide to steer clear of Australia and New Zealand for some time," he said.

"That's why we have seen the sell-off."

Stent said Sky City may choose to comment on the incident when it releases its first quarter trading up date at this Friday's annual meeting.