Star’s deal to sell Queen’s Wharf still alive as talks continue

Cash-strapped casino group Star Entertainment has bought itself more time to avert the collapse of a deal to offload its stake in the $4bn Queen’s Wharf precinct in Brisbane.

Queen's Wharf in Brisbane

Cash-strapped casino group Star Entertainment has bought itself more time to avert the collapse of a deal to offload its stake in the $4bn Queen’s Wharf precinct in Brisbane.

Star said talks to nail down the deal to sell its 50 per cent stake in Queen’s Wharf to its Hong Kong venture partners Chow Tai Fook Enterprises and Far East Consortium would now continue until the end of the month with some changes to the original agreement.

The Hong Kong venture partners last week threatened to terminate the March heads of agreement formalising the transaction after a falling out on the commercial terms.

K Capital Group’s David Kingston, whose firm holds senior debt in Star Entertainment, said the latest hurdle means the group is “not out of the woods” but its future remained finely balanced.

Star said the parties had “agreed a set of principles under which there will be certain departures from the (heads of agreement)”. They will progress negotiations with a view to finalising long form documents.

A failure of the deal would mean Star would have to repay the partners almost $37m. That includes $10m of proceeds it has already received from the joint venture within 30 days from July 7. It has also agreed to reimburse the JV partners for its share of equity contributions to the precinct since March 31, which currently stands at $26.5m and is payable within 60 days from July 7, again, if talks fail.

Mr Kingston, as reported in The Australian, said that the Queen’s Wharf sale would likely go ahead given the Hong Kong partners already had a big stake, not only in the precinct but also as substantial shareholders in Star Entertainment itself.

At the same time, Star could not afford the ongoing capital expenditure for Queen’s Wharf or to repay its debt, making the deal compelling.

K Capital’s David Kingston

Far East Consortium joint managing director Wendy Chiu recently told her shareholders that the company was prepared to walk away from the deal if the numbers did not add up.

“There are some different interpretations between Star and Chow Tai Fook and FEC,” Ms Chiu told an investor briefing in Hong Kong. “Honestly, the commercial terms have to add up, especially given this environment.”

Chow Tai Fook and Far East Consortium, which currently each hold 25 per cent of Queen’s Wharf, will emerge from the deal with 100 per cent ownership of the integrated casino project in Brisbane if it proceeds.

Under the terms of the original agreement, the Hong Kong partners would also acquire the company’s Treasury Hotel and two car parks in Brisbane.

In return, Star would receive $53m and acquire the partners’ interest in two hotel towers at its Gold Coast property. The company’s decision to offload Queen’s Wharf for a fraction of what it cost to build underscores its need to jettison a project blighted by delays and cost overruns.

Continuing uncertainty over the Queen’s Wharf deal comes after Star shareholders last month approved a $300m buyout deal from US-based Bally’s Corp and pubs billionaire Bruce Mathieson, a deal that saved the group from almost appointing administrators.

Selling Queen’s Wharf will allow Star to get up to $1bn of debt off its balance sheet and raise much-needed cash to keep some operations going.

Star has faced a series of regulatory and court actions related to its lax anti-money laundering controls and poor corporate governance that has meant its casino licences in both Queensland and NSW are under the control of a government-appointed manager.

The Queen’s Wharf precinct, which includes a casino, hotel and mixed retail area, continues to be loss making after massive cost overruns and delays in its opening last year.

Adding to Star’s troubles is industrial action, with staff at Queen’s Wharf walking off the job for several hours on Friday, claiming the company was attempting to slash weekend penalty rates and offering a wage deal that failed to address the cost-of-living crisis.

Meanwhile, the financial crimes watchdog is seeking a $400m penalty for Star’s money laundering failures which compelled Bally’s to say it may walk from the rescue deal.

Bally’s chair Soo Kim told the Inside Asian Gaming website last week that an excessive fine would likely make its $300m investment alongside Bruce Mathieson untenable.

Star says anything higher than $100m could send it broke.

Mr Kim told the influential Macau-based industry website that a “conditions precedent” to Bally’s making its final investment in Star was that it was a solvent company.

“We obviously got a solvency opinion based on the facts at the time,” Mr Kim said. “We are looking forward to getting involved in (Star) and exerting the sort of management influence that we believe this company needs to turn around, but there are scenarios where we’re not going to be able to do that. So let’s hope that those scenarios don’t play out. Potentially what the regulators have asked for, that could be a real problem.”

Originally published as Star’s deal to sell Queen’s Wharf still alive as talks continue