Fitch Places Crown Resorts on RWN Following Proposed Demerger <Origin Href="QuoteRef">CRO.AX</Origin>

(The following statement was released by the rating agency)SINGAPORE/SYDNEY, June 17 (Fitch) Fitch Ratings has placed Australia-based Crown Resorts Limited's (Crown) Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured rating of 'BBB' on Rating Watch Negative (RWN) after it said it would pursue a demerger of certain international investments and adopt a dividend payout ratio (DPR) of 100% of net profit after tax. A full list of rating actions is at the end of the commentary.The RWN reflects Fitch's view that the demerger will result in the removal of material investments that will reduce Crown's cash flow. Fitch believes that this, combined with the higher dividend, will lead to a weakening in Crown's credit metrics, particularly as the company has a significant capex pipeline for its Australian casino assets. The proposed demerger will see an increase in Crown's geographic concentration, although Fitch notes the strength of its assets in Melbourne and Perth.We expect to resolve the RWN when we receive further information on the proposed capital structure for Crown and the proposed separately listed holding company (InternationalCo) and once the required approvals have been received.On 15 June 2016, Crown announced that it intends to pursue a demerger of its 27.4% interest in Melco Crown Entertainment (MCE), its investment in the Alon development site in Las Vegas, its 20% holding in the Nobu restaurant chain, its 50% holding in UK casino operator Aspers and its investment in Caesars. The demerged investments will be placed in InternationalCo and Crown shareholders will receive new shares in InternationalCo in proportion to their existing Crown Resorts shareholding. Details of the capital structure proposed for Crown and InternationalCo will be disclosed at a later date.Following the proposed demerger, Crown will continue to own and operate its Crown Resorts' wagering and online investments and wholly-owned casino businesses, including Crown Melbourne, Crown Perth, Crown Sydney and Crown Aspinalls. The demerger remains subject to further approval from Crown's board and shareholders, and government and regulatory bodies.Crown also announced its intention to increase its DPR to 100% of net profit after tax from the final dividend for the financial year ending 30 June 2016 (FY16). Crown has stated that the increase in its guided DPR does not alter its intention to maintain a strong balance sheet and credit profile. Previously, Crown's dividend policy was to pay the higher of 37 cents per share and 65% of normalised full-year net profit after tax, subject to the company's financial position.Separately, Crown is evaluating an IPO of some of its Australian hotels and associated retail properties, which may include the Crown Promenade hotels in Melbourne and Perth, the Crown Metropol hotels in Melbourne and Perth, and the Crown Towers Perth hotel, which is under construction. Should Crown proceed with the IPO, it would place the hotels into a new real estate trust, in which it would retain a 51% stake. While this proposal would see a further reduction in the asset base, the impact could be counterbalanced by the extent that the proceeds are directed to debt reduction.KEY RATING DRIVERSNew Capital Structure: The proposed capital structure for Crown and InternationalCo will be a key determinant in the resolution of the RWN. While the details are still to be disclosed, Fitch believes this and the increase in the DPR will lead to a weakening in Crown's credit metrics. Further, Crown will no longer have the ability to monetise its 27.4% interest in MCE as an alternate liquidity source. Crown was able to use its interest in MCE to this effect in May 2016 when it raised USD800m from the sale of 155 million shares via private placement.High Geographical Concentration: The proposed demerger will concentrate Crown's activities in Australia and reduce its scale, thus negatively impacting any benefit previously given to its rating from its geographical diversification. However, this concentration is partly mitigated by the strength of Crown's Australian casinos. The assets in Perth and Melbourne have a long history of stable cash generation, which is supported by its status as sole licensed casino operator in each of these regions and stable underlying demand.Large Capex Pipeline: A demerged Crown would still have a significant pipeline of three development projects in the five years ending FY20. These projects are Crown Towers Perth, Crown Sydney and Queensbridge Melbourne. KEY ASSUMPTIONSFitch's key assumptions within the rating case for Crown include:- Crown's existing casinos in Melbourne and Perth to continue to drive its cash flows until end-FY19- Operating EBITDAR margin will be around 25% during FY16 to FY19RATING SENSITIVITIESThe resolution of the RWN will depend on the final details of the proposed capital structure for Crown, as well as obtaining the necessary approvals from the board and government and regulatory bodies. Negative: The proposed demerger could result in a one-notch downgrade following a review of information on Crown's capital structure. Any further downgrade pressure will depend on whether Crown adopts an aggressive capital structure, or leverage or capital management policies not consistent with its rating.Positive rating action is unlikely due to the uncertainty about the demerger. FULL LIST OF RATING ACTIONSCrown Resorts- Long-Term Foreign-Currency IDR of 'BBB' placed on RWN- Senior unsecured rating of 'BBB' placed on RWNContact: Primary AnalystNandini Vijayaraghavan, CFADirector+65 6796 7216Fitch Ratings Singapore Pte Ltd6 Temasek Boulevard#35-05 Suntec Tower FourSingapore 038986Secondary AnalystKelly Amato, CFAAssociate Director+61 2 8256 0348Committee ChairpersonSajal KishoreSenior Director+61 2 8256 0321Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.Additional information is available on www.fitchratings.comApplicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362Additional Disclosures Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1006216Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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