‘Irreconcilable’: Why Star’s chances of keeping Brisbane’s Queen’s Wharf are fading fast
The Asian-based investors are determined to keep the pressure on the casino to come good over its agreement to extract itself from Brisbane.
However, the privately-held conglomerate, Chow Tai Fook Enterprises and Hong Kong-listed property play Far East Consortium, are trying to keep things civil, but firm. They’ve now extended the deadline until the end of the month for Star to agree to the initial terms of the exit deal it struck in March.
The pressure point being used by Hong Kong? If Star reneges on its bailout deal, its one-time partners are coming to collect their cash.
They will demand back the $10m advance already paid to Star in 30 days from now. On top of this, they want back an additional $26.5m within two months for Star’s half of the funds they’ve so far injected into Brisbane just to keep the place running.
This is money Star simply doesn’t have, in addition to the prospect of refinancing $750m in a loan over Brisbane’s Queen’s Wharf within five months.
Then there are the hundreds of millions of dollars financial crimes regulator Austrac is demanding the casino pay for its past anti-money laundering failures. Queen’s Wharf is really nice to have, but Star simply can’t afford it.
Demands for Star to repay Hong Kong the $36.5m in total will fade away if an agreement is reached before the July 31 deadline; so too will the debt refinancing.
For its part, Star has said it intends to honour the emergency sales deal it entered into in March. That transaction, dubbed by Angus Aitken, of Aitken Mount Capital Partners, as the “stupidest” he had seen in 25 years of stockbroking, will result in Star essentially giving away the Queen’s Wharf facility for full control of two new hotels and development sites around its Gold Coast casino.
Privately, Star has told investors it’s been highly accommodating of the demands from Hong Kong.
As The Australian revealed last week, the big sticking point between everyone is around the terms of Star’s exit from Brisbane.
The deal agreed to in March set up the groundwork for Star to exit Brisbane, but the Hong Kong partners agreed to keep Star on as an operator, for the sake of continuity at the site. It paid the financially pressured Star a $5m fee each month while agreeing to cover any losses.
However, since the March agreement Star’s new US shareholder, Bally’s, has come on board. Bally’s boss, Soo Kim, has said he is keen to retain Brisbane – whether as an operator and keep collecting the $5m monthly fee, or under a business-as-before agreement whereby Star continues as the majority equity partner in Queen’s Wharf.
This is not the future the Hong Kong partners had planned, and they want Star out as an operator much quicker.
Brisbane interest
But to bring in a new operator, Star has to open up its books to prospective operators which could mean revealing all about its financial health to major rivals. It also puts Star in an awkward position given the Gold Coast casino, which it retains, will be competing against Brisbane.
It is understood the Hong Kong pair has asked bankers Flagstaff to cast a line out for expressions of interest to operate the up-market Brisbane casino. So far it has got more than a nibble – there have been big names emerging.
Other Australian casino operators the Blackstone-owned Crown Resorts of Melbourne and Perth, the Darwin casino owner US-based Delaware North, and Adelaide casino owner the Auckland-based SkyCity, have each separately expressed a strong interest in becoming the Queen’s Wharf operator.
Flagstaff has also secured interest from a large unnamed Macau-casino operator and another high-profile Las Vegas casino name. There’s more on the horizon. Added to this, Bally’s has expressed an interest in retaining Star as an operator of Brisbane.
Any new operator will need to secure approval and probity checks from Queensland’s casino regulators.
The Hong Kong pair privately said they would have an open mind about a Star/Bally’s operator in the future, but this outcome is highly unlikely. For Hong Kong, there’s extra incentive to get a new operator in sooner than later.
A big driver behind Star agreeing to offload Brisbane in the first place is it removes its exposure to the $1.5bn debt refinancing needed by the existing Queen’s Wharf joint venture, known as the Destination Brisbane Consortium, by the end of this year.
Star’s debt exposure to Destination Brisbane – $750m – simply can’t be refinanced without substantially more equity to reduce the leverage which is something it doesn’t have. This would represent another on-ramp in the road to financial collapse.
Instead, the March deal means the Hong Kong pair takes the entire $1.6bn debt exposure. However, the sticking point is the lead bankings behind the loan are understood to have expressed serious reservations about having Star stay as an operator given the casino’s own admission to money laundering failures but few signs of progress fixing its problems.
Last year’s NSW government-backed Bell Two inquiry hasn’t helped Star’s cause.
Findings released in October said it was unable to recommend Star was a suitable casino operator and said a lot more work needed to be done to for it to win its licence back. Money laundering and banking go together like oil and water.
Even with Bally’s moving in on Star’s share register, the banks aren’t convinced the New York-listed operator has the balance sheet to see through the reforms needed at Star.
Earlier this year, Bally’s credit rating got bumped down to B- which is a junk rating and one notch above the highest risk C- band of ratings.
However, Bally’s got a financial boost last week to ease its own debts by selling its international lotteries and online gaming unit to Intralot for €1.5bn ($2.7bn) in cash and €1.1bn in shares. Much of the cash will be used to refinance debt and Bally’s becomes a majority shareholder in the $US800m ($1.2bn) Intralot.
Overall, the Hong Kong partners have billions of dollars at stake in Brisbane, but have been keen to reassure the Queensland government they are patient long-term investors in Australia and intend to do the right thing by the state and thousands of employees as well as local suppliers to Queen’s Wharf.
Indeed, Chow Tai Fook points out it owned the Alinta Energy gas and electricity retailer for a decade, although it is now examining options for a sale or a partial selldown in an orderly exit.
At the same time, Far East Consortium is behind a string of up-market hotels, including Melbourne’s Ritz-Carlton. Both partners see big potential for Queen’s Wharf to become a tourism drawcard in the lead up to the Brisbane Olympics.
The 30-day countdown is on. Once again, Star finds itself racing against the clock in another fight for its survival.
johnstone@theaustralian.com.au
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