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Star Entertainment in trading halt ahead of announcing earnings hit of up to $1.6bn

Shares in the embattled casino operator have stopped trading pending an announcement about its financial future.

The Australian Business Network

Star Entertainment has entered a trading halt on Wednesday morning as the casino operator prepares to renegotiate its debt.

The “capital structure initiatives” to be announced by Star come a day before it expected to announce an interim earnings hit of up to $1.6bn.

The announcement was perceived as a potential cleansing statement ahead of a move to raise capital. Star Entertainment not only faces a mammoth challenge regaining the trust of the NSW gaming regulator, it also must shore up the confidence of its lenders to ensure it keeps the lights on across its casino empire.

Star shares have dived almost 20 per cent in the past week after it warned investors proposed tax hikes in NSW and increased competition from Crown Resorts would force it make significant writedown on its Sydney casino.

Cooper Investors, headed by Peter Cooper, has since sold more than $15m worth of shares in Star and is no longer a substantial shareholder in the company. Cooper has declined to comment on the selldown.

The Australian’s DataRoom reported on Tuesday evening that Barrenjoey had been enlisted to

advise on the negotiations with Star Entertainment’s lenders in recent days to amend its current banking covenants in an effort to avoid breaking the terms originally agreed.

The company’s flagship casino in Pyrmont – which enjoyed exclusivity in Sydney before Crown’s $2.2bn Barangaroo resort opened last August – has failed to regain momentum following a damning royal commission-style inquiry.

Star Entertainment has entered into a trading halt as it looks to restructure its debt. Picture: NCA NewsWire/Gaye Gerard
Star Entertainment has entered into a trading halt as it looks to restructure its debt. Picture: NCA NewsWire/Gaye Gerard

Since Adam Bell SC’s review into Star began last March, the company has lost most of its senior leadership, including chief executive Matt Bekier, executive chairman John O’Neil, chief financial officer Harry Theodore and chief risk officer Paula Martin, while all directors have left or flagged their resignations.

The inquiry found that Star flouted money laundering laws, allowed a Chinese junket operator to illegally operate a “casino within a casino” and disguised almost $1bn worth of gambling charges as hotel fees on Chinese debit cards, misleading the bank of China and NAB.

Star now has a market value of $1.44bn, significantly less than the value of its assets, particularly in Queensland where it has spent almost $6bn developing its casino in Brisbane and the Gold Coast.

The company is expected to remain in a trading halt until Friday.

In Star’s latest accounts, Ernst & Young partner Megan Wilson wrote in her report that it faced “material uncertainties”, due to disciplinary action from the NSW Independent Casino Commission (NICC), including a $100m fine and losing its NSW casino licence.In its accounts, Star said it had $82m in cash and could access $356m across its debt facilities, “all of which has maturities beyond 12 months”. It also said it is expected to reap $248m in cash from the sale of the Treasury building in Queensland.

Before the halt, its shares were trading at $1.52, having hit as low as $1.29 – the lowest level since Star was spun out of Tabcorp a decade ago.

Star Entertainment Group chief executive Robbie Cooke said the NSW government’s proposed casino tax hike would hurt the most.
Star Entertainment Group chief executive Robbie Cooke said the NSW government’s proposed casino tax hike would hurt the most.

But Morningstar analyst Angus Hewitt said the sell-off was “overblown” and a had a fair value estimate of $2.70 to $2.80 a share for the company.

“The lack of exclusivity in Sydney, from which Star generates most of its earnings, underpins our view that Star lacks an economic moat. We estimate Star Sydney will lose around

20 per cent of its table gaming business, and more than half its VIP gaming business to Crown within three years,” Mr Hewitt said.

“While we think regulatory uncertainty around the New South Wales and Queensland licences means investors should require an additional margin of safety, at current depressed prices, we think Star presents a good opportunity to capitalise on pessimism which has become overblown.

“We continue to expect Star to eventually prove suitability and ultimately maintain its casino licences. Indeed, the New South Wales regulator noted that, with appropriate

remedial action, it expects Star should be permitted to return to gaming in accordance with the provisions of its casino licence.”

Last Monday, Star said its Pyrmont revenue for half year to December dived 13.5 per cent below pre-pandemic levels, offsetting strong gains across its Queensland casinos.

The company has spent tens of millions of dollars reforming itself and has made widespread changes – including slamming the door on cashed-up but risky customers – after it was declared unfit to hold a NSW casino licence for flouting anti-money laundering laws.

But chief executive Robbie Cooke said on Monday that the NSW government’s proposed casino tax hike would hurt it the most.

Mr Cooke said the company would writedown $400m-$1.6bn on its Sydney casino when it releases its half-year accounts on Thursday, attributing the wide range to uncertainty around NSW’s tax system.

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Original URL: https://www.theaustralian.com.au/business/companies/star-entertainment-in-trading-halt-ahead-of-announcing-earnings-hit-of-up-to-16bn/news-story/482b5d82181595f93702313d5ca531e5