Fitch: Stable Outlook for Australia Gaming; Slower GDP Growth & Expansion Risks

Fitch Ratings says in a new report that the outlook for Australia's gaming operators is stable despite a slowdown in Australia's GDP growth and the two largest listed gaming issuers - Crown Resorts Limited (Crown, BBB/Stable) and The Star Entertainment Group (previously Echo Entertainment Group) - embarking on debt-funded projects.

The credit profiles of Crown and Star benefit from operating in well-regulated markets and owning portfolios of properties that generate strong operating cash flows. The Australian gaming market is driven by domestic customers, which has resulted in a more stable - albeit lower - growth in casino expenditure than Asia-Pacific's largest gaming centre, Macao.

Crown is expanding and refurbishing its Melbourne and Perth properties. Crown is also likely to incur debt-funded capex to fund the construction of the Crown Sydney and Las Vegas projects. Star is incurring substantial capex on its Gold Coast property, and has won the Queens Wharf Brisbane bid. Financial leverage is likely to rise as the two companies execute large projects against the backdrop of weak revenue momentum.

Australia's per capita GDP growth slowed to 0.2% in 2Q15 (1Q15: 0.3%, 2Q14: 0.3%) due to reduced mining and construction activity and lower exports. However, the impact of this slowdown was not uniform across all states. New South Wales and Victoria, where Star and Crown have their flagship properties, remained resilient in 2Q15. However, the slower economic activity was more evident in Western Australia and Queensland where the two issuers' other properties are located.