Bruce Mathieson joins Chow Tai Fook and Far East Consortium to chip in to save fallen Star

After losing veteran fund manager Peter Cooper as a substantial shareholder, Star has turned to pokies baron Bruce Mathieson and its Asian backers for support.

Star Entertainment has attracted several high profile investors as it seeks to raise $800m to keep the lights on across its casino empire after reporting a $1.2bn loss.

Billionaire pokies baron Bruce Mathieson has amassed a 4 per cent stake in the company – the share price of which has fallen to its lowest level since it was spun out of Tabcorp a decade ago – and plans to buy more shares at a discount under the capital raise.

It is understood Mr Mathieson – who is worth about $2.5bn and believes the Star is significantly undervalued – plans to increase his holding to 9.9 per cent, just below the 10 per cent limit enforced under the company’s constitution and agreements with NSW and Queensland regulators.

This would mean he will chip in about $80m for the $800m raise, which The Australian’s DataRoom revealed on Wednesday. Star has also secured another $80m from its joint venture partners Chow Tai Fook and Far East Consortium, despite their links to convicted junket boss Alvin Chau.

A Macau court sentenced Chau – whose Suncity junket ran a “casino within a casino” at Star Sydney, flouting money laundering laws – to 18 years’ jail last month after he was found guilty of being the kingpin of a criminal syndicate and illegal gaming empire.

Star has partnered with Chow Tai Fook and Far East Consortium on more than $5bn worth of developments, including Brisbane’s Queen’s Wharf, and chief executive Robbie Cooke said he is yet to see evidence of untoward behaviour.

“I haven’t heard anything that suggests that they’re not appropriate partners for us,” Mr Cooke said.

“Clearly, our regulators keep an eye on all participants in our business. They’re regulated in Queensland, so that’s not something that plays on my mind.”

Bruce Mathieson has amassed a 4 per cent stake in Star with plans to lift his holding to 9.9 per cent, believing the company is significantly undervalued.

Last April, Adam Bell SC’s inquiry into Star heard that Chau had “a direct influence” on Chow Tai Fook and Far East Consortium. This included Chau’s Suncity junket building a $4bn casino with Chow Tai Fook along a stretch of coastline at Hoi An in central Vietnam.

The Weekend Australian last August revealed that red flags were raised during the probity process for the awarding of the Queen’s Wharf contract, with government officials concerned about Chow Tai Fook’s links with Macau gambling boss Stanley Ho and his alleged triad connections.

The late Mr Ho, who was described as the “godfather of gambling” in Macau, had already been banned from involvement in NSW casino operations.

But Queensland regulators ended up recommending Premier Annastacia Palaszczuk’s cabinet in 2015 give the lucrative licence to Star – even with Chow Tai Fook chairman Henry Cheng’s 10 per cent stake and directorship of Mr Ho’s Macau casino business SJM Holdings – because rival James Packer’s bid appeared to have bigger probity problems.

While Star has been attracting new investors, veteran fund manager Peter Cooper has sold $15m worth of shares in the past week and is no longer a substantial shareholder in the company. Mr Cooper – who is worth about $500m – declined to comment, but given his reputation as a value investor, the sell-down is indicative of the challenge Star has in being able to complete its turnaround swiftly.

Mr Cooke has been working to restore the company’s relationships with regulators in NSW and Queensland and regain its suitability to hold a casino licence.

“Our key priority is to regain the trust and confidence of our community and demonstrate to our regulators that we are suitable to hold our casino licences. To that end, we continue to support the NSW Premier’s industry-wide initiatives around cashless gaming and improved harm minimisation,” Mr Cooke said.

Star’s half-year loss included a write-down of $988m on its flagship Sydney casino after the NSW government announced proposed changes to lift the state’s casino tax rate. The company had warned investors the earnings hit could be as high as $1.6bn.

“The Star and the NSW government are in discussions on the implementation of the proposed changes to NSW casino duty rates,” Mr Cooke said.

“It is uncertain to what extent the announced amendments may change. For this reason, there is also uncertainty about the impact of the proposed tax changes on The Star’s operations in NSW. The changes as currently proposed are likely to have a significant impact on The Star’s earnings and operations.”

Star Entertainment CEO Robbie Cooke (centre) said its ‘key priority is to regain the trust and confidence of our community and demonstrate to our regulators that we are suitable to hold our casino licences’. Picture: Steve Pohlner

Mr Cooke understood the tax hike was aimed at encouraging casinos to diversify more away from gambling as part of Premier Dominic Perrottet’s reform of the sector. But he said diversification required investment not hiking taxes.

“When coming on board, the thing that I was very keen on doing with our Sydney business is actually moving the balance of our revenue to be more skewed to non-gaming – doing things like building a new hotel, we want to build two new theatres here and we want to take the rooftop area to the promenade space and build an outdoor dining area that would be a landmark destination for Sydney.

“But you can’t do that if there is impost put on your business and savage the profitability of your business.”

Star Sydney’s revenue jumped 127 per cent to $541m during the half year. But it was down 14 per cent on pre-pandemic levels.

“Trading performance has been adversely impacted by several factors, including increased operating restrictions and strengthened controls from mid-September 2022 following the Bell Review and amendments to the NSW Casino Control Act,” the company said.

“This saw an increase in the number of excluded patrons and a reduced level of complimentary services and benefits in private gaming areas, impacting both EGMs (poker machines) and table games performance.”

It delivered a stronger result in Queensland, with its Brisbane and Queensland casino complexes generating respective revenue increases of 9 and 30 per cent compared with pre-pandemic levels.

Star’s Queensland operations lifted overall revenue for the half year by 75 per cent to $1.01bn.

The company has also secured covenant relief from its bank lenders and USPP noteholders until June 2025.

The capital raising will include a $115m institutional placement and be used to reduce the company’s net debt by $770m to $341m. It will target a leverage ratio of 2-2.5 times over the longer term and suspend all dividends until it reaches that goal.

“Capital structure initiatives provide increased financial flexibility to meet capital requirements provisioned for and help navigate a range of operating and regulatory uncertainties,” the company said.

Barrenjoey and Macquarie have underwritten the balance of the raise.