Ailing casino operator Star Entertainment’s rescue efforts have taken a new twist, after the company received a new offer from a US gambling firm led by a New York hedge fund manager who has specialised in picking up distressed casinos.
Star avoided collapse on Friday after signing a deal to offload its stake in the Queen’s Wharf casino resort in Brisbane to the Hong Kong-based Far East Consortium and Chow Tai Fook Enterprises. Under that deal, Star would receive a $53 million payment for agreeing to sell its 50 per cent stake to its Queen’s Wharf partners, allowing them to take full ownership of the venue.
However, on Monday Star disclosed a rival rescue proposal from the US-based gambling, betting and entertainment company Bally’s Corporation, chaired by a Soo Kim, a hedge fund manager. Star said its board would review the unsolicited, non-binding proposal from Bally’s, but there was no certainty it would be progressed.
Under the Bally’s approach, which was earlier reported in The Australian, the US company has proposed to inject a minimum of $250 million into Star by March 28, an alternative to the Queen’s Wharf deal, offering Star a path to longer term funding and securing the future of almost 9000 jobs in NSW and Queensland.
Star faces a fine in the hundreds of millions of dollars for contraventions of Australia’s money laundering laws.Credit: Joe Ruckli
Kim, the founder of the New York hedge fund Standard General, which took over Bally’s in February, was in Sydney in mid-February, kicking the tyres on whether Star’s casinos could be a good fit for Bally’s.
Born in Seoul, South Korea, and raised in Bayside, Queens, where he reportedly learned English by watching TV, Kim now controls a growing gambling empire that he built slowly and deliberately by targeting companies struggling under debt or already in bankruptcy.
With $US1.5 billion in assets under management, Standard General labels itself an opportunistic investor that watches out for mid-tier companies that have run into trouble. Star’s recent string of troubles makes it a perfect candidate, Kim said last week in an interview with Inside Asian Gaming.
“Whenever there is a troubled casino company we get calls, we are in a small group of people that don’t mind running into the proverbial smoking building, and we’re corporate firemen,” he told Inside Asian Gaming.
He said Australia was not a familiar market to the US casino group, but after closing a recent deal in which Standard General took control of Bally’s, he had thought it had more time to look at opportunities in another part of the world.
The Star on Monday released a letter from Kim to Star’s chair Anne Ward, with Kim pitching the Bally’s proposal as an “alternative path” that would benefit Sar shareholders, regulators, lenders and staff.
Kim said the proposed funding injection would involve a capital raising of at least $250 million via convertible notes, to be fully underwritten by Bally’s. The notes would be convertible into “at least” 50.1 per cent of the Star’s shares. Kim said Bally’s remained open to discussing “a larger transaction”.
“Importantly, our proposal delivers more than capital: Bally’s would partner with Star in deploying our significant operating experience in turning around casino assets and growing highly successful casino businesses globally,” Kim said in the letter.
Bally’s owns and operates 19 American casinos, including in Las Vegas and Atlantic City, as well as a golf course in New York and a horse racing track in Colorado.
Whether the Bally’s proposal progresses will depend in part on the response from Star’s board, as well as its lenders.
On Friday, Star also said it had entered into an agreement with King Street Capital Management for $250 million in bridging finance to underpin its finances until the end of April and was exploring a financing proposal to provide up to $940 million in debt capacity.
Star’s shares remain suspended and last traded at 11¢. The company’s board is yet to sign off on its latest financial accounts.
Pubs billionaire Bruce Mathieson, who is Star’s major shareholder, chose not to comment on Bally’s approach because he had not yet seen the details of the proposed deal.
Any deal to offload Star’s assets would require a number of regulatory approvals, including from the Foreign Investment Review Board.
Star has been racing to shore up its finances and avoid falling into administration. Its earnings remain under pressure from a cost-of-living crisis, and analysts expect Star to lose money for years in its current state.
There’s also a looming penalty from Australia’s financial crimes regulator – a fine in the region of $330 million, according to some analysts – for alleged breaches of anti-money laundering laws.
With Colin Kruger, Supratim Adhikari, Cindy Yin and Bloomberg
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