Private equity giants offer Star a funding lifeline

Star owns casinos in Sydney, Brisbane and the Gold Coast.

Private equity firms are understood to be approaching Star Entertainment with funding solutions amid talk the casino operator needs more money.

It comes despite a $800m equity raising in February where shares were sold at $1.20 per each, a steep 21.2 per cent discount to their last closing price of $1.52 at the time. Shares closed at $1.27 on Friday.

DataRoom understands that buyout funds including Bain Capital, Apollo Global Management and potentially Blackstone have put forward funding proposals, while US-based firm Oaktree Capital Management may be interested.

Star declined to comment.

The $2bn casino operator has drafted in law firm King & Wood Mallesons and has Barrenjoey conducting a strategic review of its Sydney casino.

Australia’s big four banks are taking an increasingly hard line on companies breaching their terms. CBA recently put skincare products company BWX into receivership, and Mosaic Brands-backed retail business EziBuy went into voluntary administration.

Blackstone purchased Star’s rival Crown Resorts last year for $8.9bn, while Oaktree has been around the hoop at Star before, and sources say that Blackstone may be interested in a funding solution rather than an acquisition.

Investment bank Jefferies Australia is believed to have advised US distress fund Oaktree Capital Management in February over negotiations with Star Entertainment for an injection of funds into the casino operator. This was before Star pulled the trigger on a $800m equity raising. At that time, Oaktree was offering about $200m through a convertible note.

While the company considered the opportunity, it moved toward the equity raising option. Large corporates typically use distress funds like Oaktree as a last resort, often striking deals at terms that are highly favourable to the funds and indicate that the company is struggling.

In 2021, Jefferies worked with Oaktree as it offered a mixture of debt and equity to enable Crown to buy back all or some of James Packer’s interest. The Oaktree offer valued the shares in the company at $12 each, whereas Blackstone eventually offered $13.10.

Star owns casinos in Sydney, Brisbane and the Gold Coast.

In April, it said it was accelerating plans to refinance debt, with a focus on improving its liquidity position and increasing covenant headroom.

The capital injection in February reduced Star’s net debt from $1.1bn to $341m, equating to 0.8 times its earnings before interest, tax, depreciation and amortisation.

The loss-making Star has written down its flagship Sydney casino by $988m in light of proposed changes to the NSW casino tax rate.

In April it said it would sack 500 workers and freeze salaries as it looked to cut costs by $100m amid a “rapid deterioration” in its earnings thanks to heightening regulation and fines linked to money laundering breaches.

Star said it expected EBITDA to plummet to $280m, a fall of up to $80m on previous estimates.

The strategic review of The Star Sydney involved considering “any structural alternatives available to maximise value for the group’s shareholders”, and sources believe the likely outcome will be a sale and leaseback of its Sydney real estate.

Among its backers are its development partners, Chow Tai Fook and Far East Consortium, which sources say could invest further in Star’s real estate.

Others that may be keen to own Star’s real estate assets include Bruce Mathieson, which owns almost 10 per cent of Star, Darwin casino owner Delaware North and real estate investment trusts such as Dexus and Charter Hall.

Also on the agenda is a sale of its Sheraton Grand Mirage Resort Gold Coast through broker JLL, with indicative bids received from interested parties in recent weeks.

The company had previously warned of a dire outlook for its flagship Pyrmont, Sydney resort where its casino licence has been suspended and hit with a $100m fine over money laundering breaches.

It has since said its Gold Coast casino was also suffering financially, following a short-lived rebound from Covid-19.