Star to walk away from $4.2bn as part of Queen’s Wharf sale

Star Entertainment’s Hong Kong partners are in Brisbane to seal a deal for control of Queen’s Wharf and it’s emerged that the casino operator will forfeit billions of dollars in management fees.

Queen's Wharf has been sold to Star’s Hong Kong partners.

Star Entertainment’s Hong Kong partners have arrived in Brisbane to seal a deal to take total control of the $3.9bn Queen’s Wharf precinct as it emerges the casino operator will walk away from billions of dollars in future management fees.

Senior executives of Chow Tai Fook and Far East Consortium are believed to be in the Queensland capital to put the finishing touches to the deal that has allowed Star to narrowly avoid administration in return for an immediate injection of cash.

Star will offload its 50 per cent stake in Queen’s Wharf and other assets to the partners for $53m plus the acquisition of two luxury hotel towers at the Star Gold Coast.

The Hong Kong partners currently hold a combined 50 per cent in the hotel, retail and casino development on the Brisbane River. Separately, Star is seeking to finalise more than $1bn in financing to shore up its liquidity.

Bally’s Corp chairman Soo Kim has launched a bid for Star.

The Australian can reveal that Star has walked away from more than $4.2bn in management fees for the operation of the Brisbane casino over the life of the agreement with its Hong Kong partners.

Under the terms of the confidential Queen’s Wharf agreement, Star was in line to be paid a guaranteed “soft cap” of $85m a year for operating the new casino and other facilities based on a revenue and earnings formula.

The life of the agreement was for 50 years, and there was provision for Star to be paid more if the property exceeded performance targets or earnings started to scale up.

However, under the rescue deal outlined by Star last week, the management rights have been scrapped in return for a $60m-a-year operators’ fee.

This means Star will continue to use its licence to run the casino as part of the Queen’s Wharf complex. However, this fee is paid monthly and it is expected the Hong Kong partners will look for a new operator to replace Star within the next few years.

The new agreement agreed to last week will result in Hong Kong-listed Chow Tai Fook Enterprises and Far East Consortium acquiring the entire Queen’s Wharf site and taking on the future financing obligations. Star has already pumped in more than $1bn for its 50 per cent share of Queen’s Wharf.

The rescue deal means more than $50m will be injected into Star and under an asset swap arrangement the under-pressure operator will also get to consolidate its position on the Gold Coast, including taking a 100 per cent stake in two hotels there.

Chow Tai Fook is the larger of the two Hong Kong partners and is expected to provide most of the funds for financing.

Both partners are expected to recoup their investment through apartment sales.

Far East Consortium this week said it was “firmly committed” to Queen’s Wharf Brisbane, its employees, and Queensland.

It said the proposed asset swap deal with Star was a critical step to securing the long-term viability of Queens Wharf.

Meanwhile, Star on Tuesday confirmed it has entered into an exclusivity and process deed with Salter Brothers Capital relating to its refinancing proposal.

That could provide Star with the potential to provide total debt capacity of up to $940m, which would provide sufficient liquidity to refinance all of the group’s existing debt.

The Australian first revealed on Monday that US-based international casino group Bally’s Corp, headed by New York hedge fund manager Soo Kim, had lobbed a separate offer to recapitalise Star with $250m, under a deal in which it would take control of the company.

It is understood the bid from Bally’s is unlikely to derail the Queen’s Wharf deal as Star appears determined to offload the precinct to shore up its shaky balance sheet.

Soo Kim, the founder of New York-based hedge fund Standard General and who took control of Bally’s Corp in a $US4.6bn ($7.2bn) deal last month, is seeking to enter the Australian casino market after a string of acquisitions in the US and UK.

Mr Kim is opting to acquire all of Star’s properties, believing that is better than a break-up of assets.

Originally published as Star to walk away from $4.2bn as part of Queen’s Wharf sale