Star is seconds from oblivion and its luck may have run out

It was mid-afternoon on Friday, but it was impossible to look away from the ASX screens that would deliver the news on whether Star Entertainment had managed to survive the day.

Administrators are at the ready, advisers are working overtime and the statements have surely been drafted, but the casino operator is still clinging to hope of a last-minute reprieve – what it calls a liquidity proposal.

On the line are 8000 jobs, the majority of which are in Sydney; almost 2000 hotel rooms risk closure and 60 bars and restaurants may shut if Australia’s major casino operator Star is declared bankrupt.

Once the company’s flagship asset, Star’s Sydney casino is now worth little more than its hotel rooms.Credit: Bloomberg

This is no tin pot company. Star’s casinos are major destinations in NSW and Queensland and a key part of their respective tourism ecosystems, feeding many small businesses such as retailers and hairdressers that survive on trade generated by those drawn to gamble at the company’s sprawling gaming precincts.

State government coffers have also been boosted by tax revenues from Star for decades. So there is a lot riding on the future of Star and the countdown is on.

Star – or the “Death Star” as it has now become known – is giving no guarantees it will still be around next week. It has run out of money and may have only hours left to find a buyer or a genuine interested party for any of its assets to avoid declaring itself insolvent.

It’s the corporate version of the Doomsday Clock ticking closer to midnight, given Star is as close as it has ever been to financial oblivion.

The crisis remains fluid, but things are clearly dire enough for Star’s directors to be unable to meet Friday’s deadline to sign off on the company’s accounts. To do so will require them to declare the company could trade as an ongoing concern. However, in a statement on Friday morning, the board said it couldn’t do that unless it had a legitimate proposal that could deliver to Star some much-needed cash.

After months of unsuccessful negotiations with lenders and asset tyre-kickers, Star’s board has come up empty-handed. But in a bizarre twist of events, the company is now telling investors it was holding out for one or more proposals that could stay its execution.

This puts Star’s directors in a particularly precarious position. They need to make a call on whether any of the last-minute proposals are “sufficiently capable of being progressed to finalisation”. And that’s a tough call.

The directors are already hobbled by a bunch of conditions imposed by a syndicate of bank lenders – Macquarie, Westpac, Deutsche Bank, Washington H Soul Pattinson and Barclays – whose covenants give them an amplified say about any moves Star makes.

The senior syndicate of lenders has security over the company’s assets and their priority is recovering the $430 million they are owed. Last year, they gave the company $100 million in funds with the possibility of extending another $100 million.

The second tranche came with conditions that Star has not met. Now Star is left in the position where it has been burning through $35 million a month and its cookie jar is empty.

Over the past month, corporate vultures have circled Star, pitching cheap proposals that the board has consistently rejected.

Star’s largest shareholders and legendary hotelier Bruce Mathieson made two offers for Star’s Gold Coast casino. Star’s Asian joint venture partners in Brisbane have offered to buy its 50 per cent share.

Additionally, a couple of large offshore private equity players have pitched an offer to buy Star debt for less than 100 cents in the dollar.

But even if Star wins that stay of execution, what of its future? The casino sector is operating under a new model – one in which there are rules around carded gaming and knowing your customer. Rules that don’t allow those big overseas junkets.

Running a casino with the proper regulatory practices in place is no longer a licence to print money.

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