Embattled casino group Star has a stalker rather than a saviour

Star investors who got excited on Monday by the left-field emergence of a mystery Macau buyer of the casino’s shares would be wise to curb their enthusiasm. There is nothing about Xingchun Wang’s taking a 5.5 per cent stake that looks like a white knight rescue attempt.

He has been stalking Star since September last year but only showed his hand this week when his stake tipped over the 5 per cent notification threshold. On Tuesday, a fresh notice showed his shareholding had increased from 5.5 per cent to 6.52 per cent.

Rather than an attempted rescue, it looks like a $35 million punt from a guy from Macau who probably doesn’t have any inside running on whether this casino group will survive.

And make no mistake – this is a big bet from an investor – even one who is located at the epicentre of gambling and who thrives on risk.

Star Entertainment needs a saviour but found a stalker.Credit: Louie Douvis

If he had been lined up or approached by the Star board as part of the rescue attempt, the company would need to have disclosed any deal or association.

The fact that it hasn’t suggests the board and its advisers are engaged in the same hunting expedition as everyone else – attempting to dig out details on this new mysterious investor who is now Star’s second-largest shareholder.

If he had been part of any rescue package he would be a lender. Buying a stake in the company won’t help Star’s precarious financial position.

Unless Wang has been given regulatory approval to move beyond 10 per cent of the casino group (and there is no suggestion he has), he can’t contribute to a recapitalisation of the company.

But the provenance of this Chinese investor remains a mystery.

He does share the name with a businessman who is the majority shareholder in a Hong Kong-listed company, E-Commodities Holdings, which trades in commodities, including coal and oil.

His private company, Winsway Resources, is registered in the British Virgin Islands.

In the ASX filing, Wang gives his address as the luxury Windsor Arch high-rise project in the Asian casino enclave, Macau.

Coincidentally, another significant shareholder in E-Commerce is PAG – a major Asian investment company that is the largest shareholder in troubled Australian airline Rex.

E-Commerce Resources has a market capitalisation of $560 million, which puts the value of Wang’s stake at around $280 million.

Star, led by chief executive Steve McCann, is in a desperate struggle to meet the conditions of a loan agreement which will give it access to $100 million.Credit: Dominic Lorrimer

For a sharemarket gambler, an investment in Star is the ultimate high-adrenaline bet.

The company is burning through cash at the rate of $35 million a month, which gives it about six weeks of funds left before emptying its piggy bank.

It is in a desperate struggle to meet the conditions of a loan agreement that will give it access to $100 million before March.

These conditions include raising at least $150 million in pricey subordinated capital and selling assets.

In a possible blow to these asset sale hopes, it has been reported that an Australian company that was lined up to buy the leasehold of the Treasury Hotel in Brisbane has pulled out in recent times.

The only positive element to Wang stalking Star is that he is prepared to place money on a bet that Star will survive. It was enough to breathe some life back into the share price, which has moved up from 10¢ to 14¢ since Wang’s shareholding was disclosed.

Equity analysts are not so confident, with Morningstar analyst Angus Hewitt, in a note to investors, saying that at its current cash burn, the company would be lucky to make it to its interim results scheduled for February 28. “We now incorporate a 50 per cent probability that Star falls into administration, and equity holders are wiped out,” Hewitt said.

Other analysts have remained silent about Star since its financial update was delivered last week.

That said, if it retains the support of lenders, sells assets and survives, there could be an upside for investors.

Wang’s punt is a long shot but would make for a big payday.

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