Date: August 13 2012
Casino operator Crown has become the latest in a string of companies to issue hybrid-style shares, through a planned $400 million offering. And like all good gaming companies, the odds are skewed firmly in favour of the house.
Crown has sought to capitalise on strong retail investor demand for hybrid-like notes sold by Insurance Australia Group, the big banks, Caltex and Tabcorp. But the bulk of the $8 billion in subordinated debt and hybrid securities sold since the start of the year offer investors bond-like returns but with equity-like risks.
The Crown offer follows plans by the gaming group to spend $568 million building a new six-star hotel at its Burswood complex in Perth.
The company, which is keen to attract more Asian high-rollers to Australia, has also signed a deal to build a luxury harbourside hotel at Sydney’s Barangaroo project.
Crown, which lodged its prospectus this morning, is offering an indicative 5 percentage point interest margin above the bank bill rate.
This is slightly at the top end of recent offerings and suggests the initial gross yield will be 8.63 per cent per annum, based on current pricing of bank bills. Although interest rates could move lower with futures markets still pricing a further cut to official cash rates.
The maturity of the Crown notes are 60 years. A key feature of the notes, which rank below bonds, are that the interest payments can be deferred until maturity at Crown’s sole discretion.
The Crown notes may be redeemed on the first call date on September 14, 2018, but there is no step-up interest if it chooses not to redeem the notes at the date. The first step-up in coupon is not until September 14, 2038, similar to the recent issue by pipeline operator APA Group.
Crown also warned investors it may also defer interest payments if the company breaches two financial ratios - including measures of debt levels and interest coverage.
Elsewhere, the Crown prospectus also highlights investors will have to pay tax on accumulated dividends and any compounding component, even if the dividends are not actually paid due to suspension.
Crown chief financial officer Ken Barton said the proceeds will support the casino’s plan to grow its portfolio of well-recognised, premium branded assets.
‘‘The offer demonstrates Crown’s diligent approach to capital management, will diversify Crown’s funding sources and will provide greater flexibility to refinance upcoming debt maturities,’’ Mr Barton said.
The Crown offer will open on August 21, with the notes to be issued on September 14 and begin trading on the Australian Securities Exchange on September 19.
There are signs investors are becoming more discerning when it comes to hybrid notes. Online employment company Seek was forced to shelve its $125 million subordinated debt issue after a cool response from a risk-averse retail market.
Gaming outfit Tatts Group sold only $185 million of the $200 million it had hoped to raise.
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