McCann plays poor hand to rescue casino giant Star

Star Entertainment chief executive Steve McCann is known as a keen poker player but even he would have known he has played a pretty weak hand in his bid to save the casino operator.

Clockwise from above right: Star Entertainment CEO Steve McCann, Star Sydney and Queen's Wharf in Brisbane

Star Entertainment chief executive Steve McCann is known as a keen poker player.

But even he would have known he has played a pretty weak hand in an attempt to save the beleaguered casino operator.

As Cyclone Alfred bore down on the Queensland coast late Friday, McCann signed off on a deal to sell the company’s 50 per cent stake in the $3.9bn Queen’s Wharf casino precinct in Brisbane for pocket change of $53m to Hong Kong partners Chow Tai Fook and Far East Consortium.

Thrown into the deal for good measure are two car parks and the old Treasury Hotel in Brisbane. Star meanwhile will acquire the partners’ interest in two hotel towers at its Gold Coast property.

It’s a very bad deal for Star, given the company is essentially giving away $1.6bn in value in its prized Brisbane casino for a little over $50m in cold hard cash.

But it underscores how desperate McCann is for funds to avoid a total collapse of the company. Exiting Brisbane, McCann is betting a smaller company focused on Sydney and the Gold Coast will be better able to survive.

Queen’s Wharf, a brand new casino precinct in Brisbane’s central business district, had faced cost over runs of at least $260m and an opening date two years behind the original schedule.

But with hundreds of luxury hotel rooms, convention areas and retail space, it was set to be a big money spinner for Star in the years ahead, especially in the lead up to the Olympic Games in 2032.

Queen’s Wharf will be sold to Hong Kong joint venture partners

By focusing on Sydney – where its casino is faring badly following the introduction of mandatory carded play – and the smaller market of the Gold Coast, McCann is taking a risk.

Nothing is certain, and McCann knows that all he has done is essentially buy a few months while he works out a more sustainable future for Star. McCann says the deal to sell Queen’s Wharf will contribute to “providing a potential pathway towards financial viability”.

“There are still a number of challenges that we need to address, including progressing short and long-term liquidity for the company,” McCann says.

McCann knows he still needs a lot of money to survive.

Star owes $430m to a syndicate of lenders and also faces a fine from anti-money laundering regulator Austrac that could top $300m.

Star revealed on Friday it is seeking to arrange a more than $1bn funding pipeline in the form of bridging finance and long term refinancing

The company has been beating the bushes for some time in an attempt to attract some deep-pocketed financiers. It was revealed last week that Queensland coal baron Chris Wallin’s QCoal had offered $200m in short term funding to the blighted company. The offer was reportedly rejected.

The question is how far McCann can shrink Star without risking the long term future of the company in an increasingly tough sector.

Pubs baron Bruce Mathieson and Crown’s major investor Blackstone have been mentioned as possible buyers of the Gold Coast and Sydney casinos, especially if they can picked up for a steal.

Former Star boss Matt Bekier is seen leaving the Federal Court in Sydney this week.

A Brisbane hotelier with links to global hospitality chain Hard Rock International last year approached troubled casino operator Star Entertainment Group about buying its Sydney operations. Sydney is one of the company’s poorest performers with one estimate putting its valuation as low as $8m so it would not raise much cash if offloaded.

Star may yet end up with the worst of both worlds – a pure casino management company at a time when the sector is coming under increasing regulatory pressure, including carded play and bans on high roller gamblers from Asia.

At the same time, it won’t have the buffer of attracting the tourist dollar by owning a brand new integrated resort like Queen’s Wharf.

Inside the halls of power in Sydney and Brisbane there is growing frustration that McCann and his team did not move quicker to stave off disaster.

Star’s reputation with casino regulators also remains at rock bottom given revelations about its lax anti-money laundering controls.

ASIC is currently suing nine former Star executives and directors including ex chief executive Matt Bekier and chairman Johnn Neill for breach of duties in relation to failing to enforce those controls.

Star Entertainment employs thousands of workers across NSW and Queensland who could still be thrown out of their jobs if long term financing does not eventuate.

Chow Tai Fook and Far East Consortium said the deal to buy Queen’s Wharf assures the future of 2700 workers there.

Queensland Premier David Crisafulli has appeared to wash his hands of the company, saying “I’ve lost no sleep over the company called Star. I think a lot about the workers, though, and my non-negotiable is that they stay in a job.”

Star still has major liquidity issues.

There is believed to be similar thinking inside the Minns Government. Officially it has declined to comment on its plans to support workers if Star collapses but says it is closely monitoring the situation.

Star shares remained suspended by the stock exchange after the company failed to lodge its half-yearly accounts in time more than a week ago. The shares have slumped almost 80 per cent in the past year to 11 cents.

They may start trading in the coming week if Star signs off on those accounts and releases them to the market. They will not be pretty reading, and are sure to show Star continues to bleed red ink. It’s has been a long week for McCann and his board but it seems all he has done is kick the can down the road and perhaps just temporarily avoid the inevitable.

Originally published as McCann plays poor hand to rescue casino giant Star