Star Entertainment Group’s market value has plunged by $300 million after the company was blindsided by the NSW casino regulator’s decision to launch a second probe into its operations.
The embattled casino giant told investors on Tuesday it welcomed the “objective forum” which would allow it to demonstrate its capability to return to suitability. Its shares plummeted by close to 20 per cent on the news.
Star Entertainment boss Robbie Cooke has postponed facing investors.Credit: Louie Douvis
“The Star intends to participate in the inquiry in an open, transparent and facilitative manner,” the ASX-listed casino operator said in a statement to investors.
Chief executive Robbie Cooke was due to unveil Star Entertainment’s half-year results on Wednesday, but the company said on Tuesday it needed more time to consider the impact of the inquiry on its interim report and would provide an updated timeframe in the coming days.
The NSW Independent Casino Commission told this masthead on Monday it had commissioned barrister Adam Bell, SC, to undertake a 15-week inquiry into The Star to assess the progress made since the company was overhauled following his 2022 report, which found extensive anti-money laundering and counter-terrorism failings.
The NSW regulator suspended Star Sydney’s licence on Bell’s recommendation. The casino has been operating under special manager Nicholas Weeks, whose term has been extended three times because the regulator is not satisfied with the company’s remediation process.
NSW Independent Casino Commission chief commissioner Philip Crawford said he was specifically concerned with the culture of the business since the first Bell report, and the “capability and capacity” of its leadership.
The company has overhauled its board, chair and chief executive since its scandals were unearthed, but a number of key executives remain in top leadership positions. Chief financial officer Christina Katsibouba, company secretary Jennie Yuen and chief customer officer George Hughes still hold their senior roles within the business and The Star promoted former chief operating officer Jessica Mellor to head its Gold Coast casino last year.
In December, this masthead revealed the regulator was dissatisfied with the progress made to improve business practices at the Star, and did not expect to reissue its licence when the special manager’s final term expires in June.
Revoking Star Sydney’s casino licence is one of several options that will be considered by the casino commission when it receives Bell’s progress report. Another is that it maintains its casino licence suspension and seeks cabinet approval to extend the tenure of the special manager for a fourth term.
NSW Independent Casino Commission chief commissioner Philip Crawford has announced a second inquiry into The Star’s operations.Credit: Kate Geraghty
The Star’s regulatory woes have been weighing on its share price, with concerns about the company’s outlook further compounded by a complicated tax increase in NSW and increased cost-of-living pressures post-COVID-19.
The Star’s shares traded at above $3 before the original Bell inquiry commenced in 2022, giving it a market capitalisation of $2.7 billion. As of Tuesday, that figure had more than halved to $1.3 billion.
The Star entered a trading halt on Monday ahead of the bombshell announcement of the second probe, but reopened trading on Tuesday. Its share price dived more than 23 per cent immediately after, and closed down 19.6 per cent at 45¢.
Crawford repeated on Tuesday the hearings were expected to be “in camera”, or private. The first Bell inquiry was also scheduled to be private until Bell came across enough evidence to suggest a public inquiry was in the interest of the broader community.
Adam Bell, SC, will undertake the latest inquiry into The Star.Credit: AFR
“Bell inquiry [No.]2 is being held in camera due to commercial sensitivities and because a private inquiry provides a more cost-effective and expedient option. This approach is in line with previous inquiries, however, it is up to Mr Bell to decide whether it is necessary and/or appropriate to hold public hearings,” Crawford said on Tuesday.
Morningstar analyst Angus Hewitt told clients he was surprised by the second inquiry and noted the plan the hearings were to be private was “likely to be a relief” to The Star, given the reputation damage following the first inquiry.
“We think [special manager Nicholas] Weeks’ tenure is unlikely to be extended after what will be a 20-month period by June 30,” Hewitt said. “We think this results in an almost binary decision at the conclusion of the inquiry – that is, The Star Sydney closes its doors, or it doesn’t.”
A temporary closure of the Sydney casino would be costly, and a complete cancellation of the licence would be “catastrophic”, the analyst said. The Star Sydney accounted for about two-thirds of Star Entertainment Group’s operating earnings before the pandemic.
Investment bank Barrenjoey predicts The Star’s operating earnings to remain lower for at least the next decade due to looming tax hikes and the cost of regulatory compliance.
It’s not yet clear how this second Bell probe into the NSW casino will affect the looming AUSTRAC penalty that The Star has been bracing for since the first inquiry was released.
Rival Crown Resorts was slapped with $450 million for similar contraventions in 2023. Crown’s fine was one of the biggest penalties in corporate history and represented 5 per cent of its last listed market capitalisation before it was bought out by US private equity giant Blackstone.
Star Entertainment provided for a potential penalty of up to 10 per cent of its market capitalisation at the time AUSTRAC’s investigation was launched.
But since then, the company’s value has become increasingly difficult to quantify for investors and analysts alike, in part due to the continued regulatory uncertainty and taxation hurdles that dominated the bulk of 2023.
Bell will now be tasked with looking into issues of culture and risk management, financial resources, management and reporting structures, compliance with internal control measures relating to customer risk, financial transactions and due diligence. His report is due on May 31.
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