By Colin Kruger
Star Entertainment may have just days to pull off a deal that would stave off collapse, as it teeters on the brink for the third time in as many months after it failed to secure a $940 million lifeline from investment company Salter Brothers to ensure its survival.
The development has put the NSW and Queensland governments on high alert as Star employs 8000 staff across the two states, and plays a crucial role in their tourism and hospitality industry with over 2700 hotel rooms and more than 100 bars, cafes and restaurants operating at its resorts.
Star still faces a fine in the hundreds of millions of dollars for contraventions of Australia’s money-laundering laws, adding to its funding woes.Credit: Bloomberg
Both state governments have declined to help Star and its investors, but are expected to step in and provide short-term support to keep its operations running if administrators are appointed.
On Wednesday, Star announced its latest refinancing attempt had failed, and that it was now pursuing funding from other sources, including a proposed equity injection from US casino group Bally’s Corporation, but did not specify how long it has before it runs out of cash.
Stakeholders who didn’t want to speak on the record amid the sensitive negotiations about Star’s future suggested things could come to a head as soon as this week, after the casino group’s lenders blocked the rescue deal with Salter.
The casino operator said talks ended after it and Salter could not get agreements needed to get security over Star’s Sydney resort. The security ensures that those lenders are at the front of the queue to get their loans repaid if Star collapses.
“It became apparent that it was unlikely that a number of the conditions precedent to the refinancing proposal would be able to be satisfied, either at all or in sufficient time to address the current liquidity needs of the company,” the Star said in a statement to the ASX.
“In particular, lender requirements for specific priority arrangements and enforcement rights in relation to their proposed security over non-gaming assets of The Star could not be met.”
Star reiterated on Wednesday that there remained “material uncertainty as to the group’s ability to continue as a going concern”.
Star has been embroiled in a spiralling financial crisis since last year, with gambling revenue falling and regulatory costs mounting following a run of scandals – including revelations of facilitating money laundering and allowing organised crime to operate on its premises – which led to the loss of all three casino licences. The move to cashless gaming in NSW, with Queensland to follow, is already eating into its lucrative poker machine revenue.
Star has survived to this point after cutting a deal in early March with its Brisbane casino partners, The Far East Consortium and Chow Tai Fook Enterprises. The two groups took full control of Brisbane’s Queen’s Wharf casino after paying $53 million for Star’s 50 per cent share. Star will also receive $5 million a month to run the casino, rising to $6 million a month as of next year.
That deal was struck just days before Star was due to run out of cash and call in administrators.
It bought the company just weeks to secure longer-term funding plans via the refinancing proposal with Salter.
The plan was for a $250 million bridging loan to underpin its funding until the end of April, while a proposed financing proposal with Salter was put in place, which was designed to provide up to $940 million in debt capacity.
Star confirmed that the latter is needed to ensure its long-term survival, and to enable its board to sign off on its financial accounts and allow its shares to trade again.
In an alternative proposal, Bally – a US gambling firm led by a New York hedge fund manager who has specialised in picking up distressed casinos – last month offered to raise at least $250 million by underwriting a convertible note issue that would be converted into at least 50.1 per cent of Star’s issued shares. Pubs billionaire Bruce Mathieson, a major Star investor, has offered to participate in the raising.
However, any talks were on hold while Star pursued the now failed Salter deal.
Separately, Mathieson has offered to buy Star’s Gold Coast casino for $550 million.
Star faces years of financial losses and negative cash flow as its revenues are forecast to decline again this year and edge up only modestly the following year, while its costs continue to rise. The company faces further penalties, including fines from the money-laundering regulator AUSTRAC, which are expected to exceed $300 million.
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