The coronavirus epidemic threatens to derail James Packer's controversial deal to sell almost 20 per cent of his Crown Resorts casino empire to Hong Kong gaming tycoon Lawrence Ho.
Mr Ho's Melco Resorts said the company had dumped plans to proceed with the full $1.75 billion purchase from Mr Packer by walking away from buying the second $880 million bundle of shares.
In a statement released on Thursday night, Melco cited "the impact of the coronavirus epidemic, including a severe drop in tourism … and the recent decision by the Government of the Macau special administrative region to close all casinos in Macau".
Coronavirus has disrupted businesses around the world amid fears that damage to China's economy could create an economic shock and derail the global economy.
Already, the Chinese Government's two-month ban on group tours, combined with the later Australian Government ban on non-resident Chinese arrivals, has seen Crown's share price lose more than a dollar over the past three weeks to finish yesterday's session at $11.61.
Analysts at investment bank UBS last week fingered Australia's major casino operators, Crown and Star, as two of the biggest potential losers as the efforts to contain coronavirus drag on.
"We estimate VIP volumes could be down 50 per cent with some loss of play from both international and domestic main floor," UBS forecasted.
"We believe this could drag financial year (FY) 2020 EPS (earnings per share) by circa 10 per cent and FY21 EPS by circa 20 per cent."
Crown and Melco already facing NSW inquiry
Melco's decision to "reassess all non-core investments to be made in 2020" also comes as a high-stakes inquiry by the New South Wales gaming regulator prepares to scrutinise whether the proposed deal breaches a condition of Crown's licence to operate a VIP casino at Barangaroo in Sydney.
The inquiry by the NSW Independent Liquor and Gaming Authority is probing Melco's agreement in May 2019 to buy 19.99 per cent of Crown Resorts for $1.76 billion in two tranches of just under 10 per cent.
The Barangaroo licence specifically outlaws any links to Lawrence Ho's 98-year-old father Stanley Ho, who in the past has been linked to allegations of organised crime in Hong Kong and Macau.
Crown Resorts has engaged Rowena Orr QC to lead its legal team at the inquiry, which gets underway on February 24 in Sydney.
Ms Orr is best known as senior counsel assisting commissioner Kenneth Hayne in the financial services royal commission.
New chair Coonan says Crown addressing concerns
In a statement released on Friday morning, Crown Resorts noted the Melco announcement and said that both Crown and Melco had entered into discussions to terminate the share sale.
Speaking to the ABC's AM program before the Melco announcement, newly appointed Crown chairman Helen Coonan said it would be inappropriate for her to comment about Mr Packer's share sale before the inquiry resumed.
However, the former Howard government minister said, as part of improved governance at Crown, the gaming company had introduced new measures to ensure the gaming empire complies with the law.
"We've taken a number of practical measures, including engagement of an anti-money laundering expert," Ms Coonan said.
"Most recently, we've appointed Nick Caldas, who is one of the nation's most distinguished police officers, to review our anti-money laundering and counterterrorism financing compliance processes."
Crown has rejected allegations by 60 Minutes, The Age and The Sydney Morning Herald last year that the company was exposed to money laundering, a breach of gaming regulations and human trafficking.
Ms Coonan added that Mr Packer was coping well after he revealed mental health issues last year.
"I met Mr Packer when he came back to have a look at the property (Barangaroo) and I thought he looked very well," Ms Coonan said.
"He certainly was his usual incisive self, so I think you could say he's in a much better place than perhaps he has been in the past."
The boardroom shakeup at Crown announced on January 25 saw the company's executive chairman John Alexander step down.