By Colin Kruger
Embattled casino operator Star Entertainment Group is bracing for the release of its annual report with an update from the board on how precarious its financial position is.
Star Entertainment’s board, and its auditors, must sign off on the accounts and determine whether the company is a going concern by October 30: This means the company, in their opinion, would be able to pay its liabilities as they fall due over the next year.
Cost overruns at the Star Casino and Queens Wharf complex in Brisbane have added to the group’s financial woes. Credit: Glenn Campbell
Analysts have said the NSW casino regulator’s modest $15 million fine, and the extension of the suspension on Star’s Sydney casino licence last week, is as good as the casino could have hoped for, but they flagged that its financial position remains precarious as it faces a declining gambling business, rising compliance costs, and a money laundering fine in the hundreds of millions of dollars.
“Star still needs to prove suitability to operate its casinos, a substantial fine from Austrac is looming (we expect it to be about $330 million), and the recovery of earnings is highly uncertain,” Morningstar analyst Angus Hewitt said.
Macquarie Research has allowed for an Austrac fine of $350 million with payments phased over three years, mirroring a similar instalment deal that the regulator agreed to with casino rival Crown last year.
“The first two months of FY25 trading has shown a continued deterioration in [underlying earnings], driven by a growing cost base despite a decline in revenues,” Macquarie said.
NSW Independent Casino Commission chief commissioner Philip Crawford decided the Star would be allowed more time to become fit to hold its Sydney casino licence. Credit: Dominic Lorrimer
Star provided for fines and penalties totalling $150 million over alleged non-compliance with anti-money laundering laws in its financial report for the half-year ended December 31, 2022, after ASIC raised concerns.
It is not the only hurdle for the group, which finally received fresh debt funding last month but with harsh conditions attached.
The interest rate on the loans was set at an onerous 13.5 per cent. The two $100 million tranches are also secured over company assets. The second tranche is conditional on Star raising $150 million from investors this year.
Star may need $400 million in funding from other sources on top of the $300 million it expects to raise from planned asset sales, analysts at Jefferies say.
“Given gearing levels, Star may be forced to contemplate significant strategic decisions such as a divestment of Queen’s Wharf Brisbane equity or other key assets, which we expect would come with their own regulatory hurdles,” analyst Kai Erman said.
Last week, the NSW casino regulator handed Star’s flagship Sydney casino a significant reprieve when it extended the suspension of the casino’s licence despite the business remaining unfit to hold it.
The NSW Independent Casino Commission handed Star a $15 million fine and extended its licence suspension into next year. Chairman Philip Crawford said there was “no coming back if you take the licence away”.
Star shares closed at 27c on Friday, valuing the casino operator at just $832 million.
Privately owned Crown Resorts released its financial results on Friday evening, with losses that reflect the financial challenges that Star is facing.
Total revenue dropped 4.4 per cent to $1.43 billion while net losses improved to $164.8 million from $199.4 million the prior year.
Crown has been found suitable to retain its casino licences in NSW and Victoria and has completed more than $200 million in remediation work needed to meet compliance obligations. It is also shoring up its balance sheet with the sale of non-core assets such as its stake in the Nobu restaurant chain, part-owned by Hollywood star Robert De Niro, for $US180 million ($268 million).
It has also sold the One Queensbridge site in Melbourne for $85 million. It had been earmarked for a hotel and apartment complex. Crown is also selling its remaining private jet.
Both casinos are suffering due to the foreign, predominantly Chinese, tourists not gambling in the numbers expected thanks to the pandemic, and a slowing economy in China.
International tourism arrivals remained 80 per cent below pre-COVID levels for the 2024 financial year.
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