Star Entertainment may be ‘out of the woods’ but at what cost

Troubled casino group Star Entertainment’s shares have plunged over the past couple of years in a massive destruction of value but analysts say it may be coming ‘out of the woods’.

Star Entertainment’s planned $1.2bn capital raising and refinancing deal could take the troubled casino group ‘out of the woods’, Macquarie analysts say, but others argue it is a long way back for the company after such a massive destruction of value over recent years.

“The earnings outlook for Star is improving with current trading the likely low point,” said Macquaire in a note to investors on Tuesday.

“The completion of the debt refinance with the help of an equity raise resets the balance sheet. We now see Star as out of the woods.”

Star is tapping investors and its bankers for the extra $1.2bn — the equivalent of its total market value — as it seeks to keep the lights on across its three-city empire.

Hunter Green Institutional Broking director Charlie Green has called Star one of the worst-ever destroyers of shareholder value by a Queensland-based company, likening it to the collapse of financial services group MFS in January 2008.

Gold Coast-based MFS imploded owing more than $2bn, leaving investors out of pocket in a precursor to the economic devastation wrought just months later when the global financial crisis began.

Mr Green pointed out that Star’s market cap in 2017, when its shares were trading at $6, was $5bn. Its market value on Friday when its shares were suspended at 75c was $1.2b.

Explosive inquiries in NSW and Queensland have weakened the company, which is fighting to maintain its casino licences in the two states. It also is fighting a court battle with Multiplex over cost overruns on its flagship Queen’s Wharf project in Brisbane.

“All this during the biggest property boom Queensland has seen since the late 80s,” said Mr Green. “Star is dealing with multiple fires, not least Multiplex chasing them for more dollars.”

Star announced late on Monday that its dividend suspension will remain until it reduces its debt levels and a fine potentially totalling hundreds of millions of dollars from the financial crimes regulator is resolved. It comes just seven months after Star raised $800m from investors, including billionaire pokies baron Bruce Mathieson and its joint venture partners Chow Tai Fook and Far East Consortium.

Is Star out of the woods?

Star entered a trading halt ahead of the announcement after its shares fell to a record low of 75c and it posted an annual statutory loss of $2.4bn.

It will seek to raise an additional $750m from investors via a $589m, 1 for 1.65 pro rata accelerated non-renounceable entitlement offer. A $161m institutional placement will provide the balance. The offer will be at fire sale prices, at 60c per new share — a 20 per cent discount on its last closing price of 75c.