NZ casino operator says Crown arrests in China to impact business

October 21, 2016 12:24 AM EDT

The logo of Australia's top casino operator Crown Resorts adorns an entrance to the Crown Perth hotel and casino complex in Western Australia, October 20, 2016. REUTERS/Aaron Bunch

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WELLINGTON (Reuters) - New Zealand casino operator SkyCity Entertainment Group Ltd said on Friday it was likely to be adversely affected in the short term by the detention of employees of Australian peer Crown Resorts Ltd in China.

Shares in SkyCity fell nearly 14 percent amid fears a crackdown on gaming by Chinese authorities would hurt its ability to attract Chinese VIP gamblers and as it reported a fall in quarterly revenue.

SkyCity, which has six casinos in five locations in New Zealand and Australia, does not have an office in China or any China-based employees. However, it does engage independent contractors in China who help manage customer relationships.

SkyCity said none of its contractors have been questioned or detained.

Interim Chief Executive John Mortensen told analysts and media that the accuracy of information coming out of China about the Crown arrests was "at best speculative", but that the arrests would have an impact.

"It is clear that these changes in the immediate future will impact our international business from China," he said.

In the year to June 2016, the company's international business represented 15 percent of the group's normalized revenue of around NZ$1 billion ($716.90 million). Fifty percent of total group turnover in the international business was from Chinese customers.

Macquarie Research said in a note to clients that it estimates a worse-case impact on earnings per share of around 4 percent for the international business in the current financial year.

"The financial impact of the situation remains highly uncertain," Macquarie said.

Milford Asset Management Portfolio Manager Brian Gaynor said the trading outlook was uncertain over the medium term but "obviously is very negative at the moment."

Mortensen declined to comment beyond the short-term impact.

"The outlook is relatively uncertain and we don't want to speculate on what the implications could be as we go forward for the next few months," he said.

Eighteen of Crown's employees, including its head of VIP gambling, have been detained for several days by the Chinese authorities. As of Thursday no charges had been laid.

SkyCity also reported a 5.7 percent fall in normalized revenue to NZ$262.1 million for the quarter ended Sept. 30, citing below-trend gaming activity in Auckland, lower turnover from its international business, ongoing difficult trading conditions in Australia's Darwin and the high New Zealand dollar.

($1 = 1.3949 New Zealand dollars)

(Reporting by Rebecca Howard; Editing by Jane Wardell and Alan Crosby)

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