Inside Star Entertainment’s battle to keep its lights on

Facing fines of up to $100m from the NSW gaming regulator, Star Entertainment says it will seek waivers or amendments from its lenders 'if required'.

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.

The troubled company, which a royal commission-style review found unfit to hold its NSW casino licence, on Wednesday released its audited accounts for past financial year.

Ernst & Young partner Megan Wilson wrote in her report that Star faced “material uncertainties”, due to potential disciplinary action from the NSW Independent Casino Commission (NICC), including a fine of up to $100m and losing its NSW casino licence.

Commissioner Philip Crawford was scathing of Star’s culture. Picture: Nikki Short

The group also faces a potential blockbuster fine from the financial crimes regulator, AUSTRAC, over “serious noncompliance” with anti money laundering and counter-terrorism financing laws.

Each breach attracts a penalty of up to $22.2m and AUSTRAC has previously fined Westpac and the Commonwealth Bank $1.3bn and $700m respectively over similar issues.

“Significant adverse outcomes in relation to these matters may result in the group not being able to continue as a going concern unless the group continues to have the support of its lenders,” Ms Wilson wrote.

Star said it was in “contact with its lenders and would seek additional waivers or amendments if required”, like it did during the onset of Covid-19.

“The group expects to be able to generate sufficient cashflows from its current operations, access other sources of liquidity or amend existing funding agreements or obtain new funding to fund ongoing operations and any pecuniary penalties,” it said.

The NICC, chaired by Philip Crawford – who said he was not getting the “vibe” from Star that it understood its “problems” and was showing the necessary leadership to fix them – will meet on Friday when for the first time it will discuss the future of Star’s NSW licence.

Star’s shares fell 1.1 per cent to $2.63 on Wednesday, extending losses to 19.3 per cent since public hearings into a review, led by Adam Bell, SC, began in March.

This compares with a 13.4 per cent decline across the broader share market during the same period.

Star executive chairman Ben Heap has responded to the NICC. Picture: Joel Carrett

Star executive chairman Ben Heap said in a five-page response to a “show cause notice” from the NICC that the company was “committed to working swiftly, constructively and transparently” with the regulator.

“This is important, not only for the business but for our thousands of committed and hardworking employees. We owe it to them to do everything in our power to get this right,” Mr Heap said.

Star has not disclosed the cost of implementing its 130-point plan to regain suitability, which includes engaging PricewaterhouseCoopers and Deloitte, and hiring 53 staff in its “safer gambling, financial crime, risk and compliance” functions.

It would take on 25 external financial crime specialists – lifting staff in that team to 56 people.

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.

At the same time, the value of its assets has sunk from $3.6bn to $3.43bn in the past year.

Star Entertainment’s former interim chief executive, Geoff Hogg. Picture: Liam Kidston

It has already spent $17.4m on the Bell review, which found it unsuitable to hold a NSW casino licence. The review led to the departures of most of its executive team, including former chief executive Matt Bekier, acting chief executive Geoff Hogg, chief financial officer Harry Theodore, chief legal and risk officer Paula Martin and NSW casino boss Greg Hawkins.

“The group has taken significant actions to manage the risk of further wrongdoing in the short term, including refreshing the board and senior executive teams, the cessation of high-risk activities and implementing the remediation and transformation program to effect significant improvement in the governance, culture and controls of the group,” the company said in its accounts.

“The Sydney property and broader casino industry is in a state of significant uncertainty. Recent regulatory changes have resulted in the cessation of the junket business, the pausing of international and domestic rebate businesses while Covid-19 restrictions continue to affect international visitation.

“The outcome from the Bell review and AUSTRAC investigation remain uncertain. In combination, these factors have reduced the valuation of the Sydney cash-generating

unit, requiring an impairment of $162.5m.”