Star Entertainment faces mounting debt in wake of $100m fine

The timing of the payment of a $100m fine will be key for Star Entertainment and whether it will be able to keep the lights on across its casino empire.

Major investors in Star Entertainment are concerned an immediate payment of a $100m fine will force the company deeper into debt, with the troubled casino group’s latest accounts showing it only has $82m in cash.

The newly formed NSW Independent Casino Commission has effectively declared Star too big to fail, allowing its doors to remain open at its flagship Pyrmont casino, despite suspending its licence.

But investors are concerned about the payment terms of the $100m fine the regulator issued the company after an inquiry, headed by Adam Bell SC, found the company had set up an “inherently deceptive and unethical process” ­disguising almost $1bn as hotel expenses to allow wealthy Chinese patrons to gamble, failed to check the source of the money ­ – and knew for years it was in breach of the rules.

The news sent Star shares into a trading halt on the ASX and follows its auditor warning last month that the company must shore up the confidence of its lenders to ensure it keeps the lights on across its casino empire.

Meanwhile, Star has said it is in “contact with its lenders and would seek additional waivers or amendments if required”, like it did during the onset of Covid-19.

The Star has been hit with a $100m fine following the Bell inquiry. Picture: Damian Shaw

In its latest accounts, Star has $82m in cash and can access $356m across its debt facilities, “all of which has maturities beyond 12 months”. It also expects to reap $248m in cash from the sale of the Treasury building in Queensland.

Investors who spoke to The Australian say if Star has 12 months or more to pay the $100m fine, it could cope.

A Star spokesman said on Monday: “The company has various sources of liquidity available to it to pay the fine over a time period still to be agreed with the NICC.”

But the group also faces a potential blockbuster fine from the financial crimes regulator, Austrac, over “serious noncompliance” with anti money laundering and counter-terrorism financing laws.

Each breach attracts a penalty of up to $22.2m and Austrac has previously fined Westpac and the Commonwealth Bank $1.3bn and $700m respectively over similar issues.

Investors were concerned NICC chief commissioner Philip Crawford would impose onerous conditions on the company in exchange for allowing it to keep its casino open, particularly after he said he was not getting the “vibe” from Star that it understood its “problems” and was showing the necessary leadership to fix them.

But on Monday, Mr Crawford said Star under executive chairman Ben Heap had “demonstrated genuine contrition and a desire to work openly and transparently” with the regulator.

“If it were not for The Star’s change in attitude and our belief that it is in the public interest to protect the thousands of jobs at risk, there might have been a different outcome,” Mr Crawford said.

“The Star’s current board and executive understand the gravity of Bell’s findings. They have publicly apologised and acknowledged the serious wrongdoing that occurred, and they are willing to co-operate with the regulator.”

Mr Crawford said although the NICC “resolved that it is no longer in the public interest that The Star should remain in control” of its casino licence, he will allow it to continue to trade, with the regulator installing Nicholas Weeks as its manager.

Mr Crawford said Mr Weeks — a former NRL chief operating officer and executive who lead Crown’s regulatory transformation following the fallout of the NSW Bergin inquiry — will oversee Star’s operations “until it can determine whether the matters identified during the Bell Review can be rectified and whether the NICC believes it is likely that The Star can achieve suitability”.

“The appointment of a manager does not mean the NICC believes The Star is suitable to hold a casino licence,” Mr Crawford said.

“The appointment of Mr Weeks will allow casino operations to continue and his primary focus will be to ensure a robust root cause analysis and review of the casino’s culture is undertaken.”

Mr Weeks will start at Star on Friday — ahead of the arrival of the company’s new chief executive Robbie Cooke on Monday.

“I’m hopeful incoming CEO Robbie Cooke can apply his experience and leadership skills to guide the company towards suitability under the direction of the manager,” Mr Crawford said.

The Bell inquiry also found that instead of shutting down junkets bringing in major overseas gamblers, Star allowed them to continue to operate – “a collective decision by the senior management … which reflected a culture in which business goals were given undue priority over regulatory and money laundering and terrorism financing risks”.

One Chinese junket, SunCity, was even caught exchanging bundles of cash from backpacks for gambling chips in a gaming room known as Salon 95 at Star’s Pyrmont casino, flouting state casino and money laundering laws. But instead of banning SunCity, management moved them to a ‘secret’ room.

A separate inquiry in Queensland has also found Star unfit to hold a casino licence in the state, after revealing the company not only allowed, but paid, for patrons banned in NSW to travel to its Brisbane and Gold Coast casinos to gamble, showing a “lively disregard for the law”.

The two inquiries have led to most of the company’s senior leadership resigning, with acting chief executive and long-term Queensland boss Geoff Hogg quitting late last month.

Other departures from Star include departures from Star, including former chief executive Matt Bekier, chief financial officer Harry Theodore, chief legal and risk officer Paula Martin and chief casino officer Greg Hawkins.

Originally published as Star Entertainment faces mounting debt in wake of $100m fine