Star strikes a terrible deal for casino’s survival
Star is giving away more than $1bn in value for just spare change, but it removes three immediate threats to the casino’s survival.
Business
Don't miss out on the headlines from Business. Followed categories will be added to My News.
There’s no way to sugar coat it: This is a terrible deal.
Star’s board has effectively agreed to give away $1.6bn in value in its prized Brisbane casino for a little over $50m in cold hard cash.
This shows just how critically wounded the casino operator is.
Without this take-it-or-leave-it lifeline coming from its Hong Kong partners, Star would now be in the hands of administrator FTI Consulting and thousands of workers would face an uncertain weekend. A string of banks and two state governments would also be equally nervous.
After week-long talks, the heads of agreement between Star’s Hong Kong partners, Chow Tai Fook Enterprises and Far East Consortium, was signed earlier on Friday as the Australian casino was down to its last few millions of dollars.
Exiting Brisbane was the critical step in the next part of Star’s rescue plan, securing an extra $250m the bridging financing from New York-hedge fund King Street Capital. This fast-money comes with an eye-watering interest rate of 15 per cent. Last September lenders were asking for 13.5 per cent. Still, cash is cash.
Simultaiously Star was in talks with another lender for a $940m long term refinancing to buy out its existing debt. This agreement has a way to be finalised.
The Hong Kong deal is the most tangible. It needs Queensland government approval, effectively means Star will make a full retreat from the fast-growing Brisbane market.
The Flagstaff-advised Chow Tai Fook Enterprises and Far East, that have been along all the way in Star’s massive $3.2bn Queen’s Wharf venture in Brisbane, will now take full control of the entire project.
Star has agreed to tip in its up-market, but tired, Treasury Hotel in Brisbane and two nearby cash-rich car parks in exchange for getting full control of the two newly developed hotels at Star’s Gold Coast casino. The Treasury property had already been shopped around for a sale and this ends that process.
On the Gold Coast, Star currently has 33 per cent of the two towers, the newly opened Dorsett hotel and the yet-to-be opened up-market Andaz. Star already has full control of the casino there.
It’s a consolidation prize; the Gold Coast is really targeted at the domestic tourism market. It won’t every be as lucrative as Brisbane, is still a much-needed profit centre. Star’s remaining Sydney casino, meanwhile, is in serious trouble thanks to the shift there to cashless gaming.
Under the Hong Kong deal, Star gets $53m in cash – including $35m by the close of business on Friday so its can keep paying the bills for another month. More payments are set to follow. For now, Star will operate the new Queen’s Wharf casino by holding the license on behalf of the Hong Kong partners; that will be another $60m for the next year.
This deal, terrible as it is, at least solves three immediate and potentially lethal problems for Star.
The first is it removes the biggest risk around the refinancing of a crippling debt on Queen’s Wharf. Without that debt Star has a fighting chance as its on-balance-sheet debt of $430m is easily secured by existing assets.
Secondly, it removes the almost $360m in further cost blowouts needed to complete the Queen’s Wharf development. The Gold Coast development is not entirely risk free although is nearly fully funded.
The other problem it solves is that Star gets the cash it desperately needs to continue paying its bills.
Queensland’s new Crisafulli government may not be over the moon about the large chunk of the Brisbane CBD now being controlled by Hong Kong property developers with Macau influences.
It means jobs will be saved at no cost to the public purse. To smooth the transition, the partners have agreed for someone else to hold the casino licence and run the tables.
Star will be operator for now but is unlikely to be over the long term, with New Zealand’s Sky City, a US operator, or even Blackstone-owned Crown potentially eyeing an entry.
Does this mean Star will survive? It is still extremely cash poor, and $53m is only likely to give it fewer than two months. The $250m King Street loan will then give it a financial bridge.
That will lead to the broader $940m refinancing as it attempts to trade through its Sydney woes. This should all be taken with caution, Star has been at this rescue launch pad at least three times since September, all for it to go nowhere. With the Brisbane exit this one has more certainty.
There are still some big ugly payments to come for Star, including a likely large Austrac fine for money laundering breaches, and NSW’s hapless regulator, the NICC, will be looking for its cut of Star’s cash.
The NICC move to cashless gaming in NSW has smashed Star’s business model in Sydney, meaning the casino will need to recalibrate around that.
Survival is still not certain. But with a terrible deal Star at least has something it previously didn’t have to fix itself: Time.
Originally published as Star strikes a terrible deal for casino’s survival
Will fixed income finally shine? It may depend on Donald
Recent years for bond investors ranged from average to terrible, and uncertainty continues, but alternatives are multiplying.
Aussie pokies maker sues US minnow to ‘make an example’
The $43bn ASX-listed Aristocrat is suing a small US company over allegations it ripped off its ‘Bufallo’ and ‘5 Dragons’ games and it wants the courts to approve punitive damages.