Holding all the cards: Inside the battle to save The Star
There are three options being mulled by the casino’s board. All of them are equally brutal.
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Billionaire Bruce Mathieson fell in love with The Star casino on the Gold Coast when he received Platinum and Diamond member status of The Star Club.
Legend has it that Mathieson, the pub and poker machines magnate, would make a phone call and then take a 10-minute drive from his Mermaid Beach mansion to Broadbeach and revel in the casino’s VIP treatment.
It wasn’t exactly the high-rollers club, but Mathieson – a rough and tumble character who rose from Port Melbourne poverty to be Australia’s biggest pub magnate – enjoyed the understated benefits his tier’s status came with.
There would be, as one who knows Mathieson well, three people to greet him.
“One to park his car, one to shake his hand and the other to show him to the restaurant”, where he would delight in the 20 per cent discount he’d get for a steak or schnitzel.
He and wife Jill would then spend time putting $500 through the poker machines; a decent and quiet night’s entertainment was Mathieson’s rationale.
Now, just a few years later, Mathieson is still coveting The Star’s Gold Coast property.
And he could make all the difference to whether Star, which also operates casinos in Sydney and Brisbane, gets to keep spinning or finally goes bust.
Sources say he, son Bruce Jr and advisers have been crunching the numbers to see if they can stump up the estimated $600m to win the Gold Coast property from the embattled casino group at a bargain-basement price.
Mathieson has previously played down the prospect, but with the billionaire battling myeloma, an aggressive type of blood cancer, and Star struggling to stay together as a listed entity as its shares remain suspended, there is potentially an opportunity to do a legacy-defining deal.
He has already said he believes Star has “some wonderful assets”, and has increased his shareholding several times to be the casino group’s single biggest backer.
As Star struggles to raise funds ahead of a looming cash crunch, the refurbished Gold Coast site, the old Jupiter’s Casino, is regarded as the quiet achiever in the Star portfolio. It has undergone a $850m refurbishment and is less reliant on international tourism than Sydney or Brisbane.
It never chased the toxic junket trade, and mostly built its fortunes around domestic tourism.
If it was a booming market for property, casinos and tourism, the site could fetch $1bn at a stretch, but numbers like that won’t be seen for years.
Mathieson is considered the best pub dealmaker in the country, having bought and sold about 1000 of them since acquiring his first hotel in 1975.
“Bruce sees Star [on the Gold Coast] as basically a big pub, and he knows pubs,” says one source familiar with the billionaire’s previous deals.
Another source says Mathieson would be interested in the Gold Coast casino if it became available, but he would also be interested in Star’s Sydney property as well.
“If you get Gold Coast you get the freehold, and who is the billionaire who has [passed] probity who lives 10 minutes away? It’s Bruce. So people are putting two and two together.”
The coming week represents a critical moment in the long and trouble history of Star and could be one that determines if the casino group has a future at all.
Star’s board has a new board led by former National Australia Bank chief legal counsel Anne Ward and has brought in investment bank UBS alongside existing bankers Barrenjoey to help look at financing options as the cash demands mount for the opening of its new $3.6bn Queen’s Wharf venture in Brisbane.
With Star’s earnings falling off quicker than expected, a blowout in Brisbane construction costs, more writedowns coming and uncertainty over the future of its Sydney licence and fines, it is believed the casino is close to breaching one of the convents on its existing $450m debt facility.
The mostly drawn-down loan requires Star to have a minimum of $100m in liquidity and has put in place ceilings on interest cover. Although the testing date for the covenants are not until December, Star is facing a major cash call and its auditors haven’t been able to sign off its full-year accounts, which are now weeks overdue.
The Weekend Australian has revealed Star’s board had sought advice from restructuring specialists FTI. A recent shake-up of insolvency rules gives companies the room to trade out of their problems, providing certain conditions are met. However, it’s a fine line between trading while insolvent and staying within the safe harbour.
Star in the past two weeks had been testing investor appetite for raising a $300m high-yielding convertible note, but they were spooked by the release of the second Bell inquiry report that was issued on the morning Star was to release its full-year accounts.
Star has appealed to the NSW government for relief on a crippling casino tax, but Premier Chris Minns is refusing to budge. Although Star has argued 3000 jobs in Sydney are at risk, Minns believes any tax breaks granted by NSW would be used to prop up the development costs in Brisbane. Unsurprisingly, the Queensland government has been open to a tax deal, given the monster development now on Brisbane’s waterfront with another 3500 jobs on the line.
The convertible notes roll over to equity if there’s a default on debt payments. Star’s bankers have been holding talks with the investors, including Mathieson, as well as Perpetual and Wilson HTM, to protect their existing equity position.
At the same time, Star has been seeking relief from a crippling casino tax that will slice millions of dollars from earnings, while regulation costs pile up.
Complicating, and potentially frustrating, matters has been Mathieson’s stake in Star that he has accumulated since he paid about $140m for a then 9.9 per cent stake in March last year. He has since spent more than $50m topping up the stake.
That stake has not necessarily brought the Mathieson family any leverage, though, and if the company goes into administration there’s a chance those shares eventually are worth nothing.
Potential investors are getting jumpy over what is still to come from the NSW casino regulator, which has also withheld the release of the third and final volume of its casino inquiry by Adam Bell SC. This last volume is a report into the viability of Star, which involves a forensic analysis undertaken by restructuring specialists KordaMentha.
Volumes one and two of Bell were released a week ago and recommended that Star remains unsuitable to hold its casino licence, The report also identified four breaches – although they were all previously self-reported by the casino.
After more than a month, the NSW Independent Casino Commission is still deciding what course of action to take on Star, including another fine or a decision over its licence. This uncertainty has only made Star’s fundraising efforts harder.
If the funds fall short, Star’s board has three courses of action. And each of them are brutal.
The cleanest is to sell the Gold Coast casino, where Mathieson is ready to strike.
“Bruce would be the one that’s thought most about buying the Gold Coast. He knows the business well. He loves that casino,” one banker says.
Another option being mulled by the board is to sell the troubled Sydney casino and keep the two Queensland properties. The prospect of Queensland government tax relief and synergies between Gold Coast and Brisbane would make a smaller but more focused business. Like the Gold Coast, Sydney has a ready buyer who could pull off a deal quickly: Crown owner Blackstone.
The asset giant, which this week made headlines for paying over the odds for data centre operator AirTrunk, already has clearance from NSW to run the casino in Sydney’s Barangaroo.
Blackstone also needs Star’s pokies licence to make its Sydney business more viable, with Crown Sydney carded play only. Blackstone can also secure cost savings by consolidating management, staff and regulatory costs.
Blackstone will have little interest in the entire company, given the expected $350m-plus Austrac fine being negotiated between new Star CEO Steve McCann and the anti-money-laundering regulator. There’s also the prospect of other large payouts, with four shareholder class actions being pursued and at least another $250m needed to complete Queen’s Wharf.
The final option is full administration and a likely break-up that would follow. Here both Blackstone and Mathieson would play a role while any fines and charges would be paid out with whatever remained with the head company. Brisbane is a tougher business to sell as a single entity, given the joint venture structure and backers, including the private Hong Kong conglomerate Chow Tai Fook Enterprises and Hong Kong property developer Far East Consortium. Malaysia’s Genting has been cited as a possible operating partner, although it has a full agenda in Las Vegas.
For now, all roads firmly lead back to Mathieson.
The giant Queen’s Wharf opened last week, with thousands flocking to the new bars and restaurants.
Although it is early days, those inside Star have been encouraged by the initial response and will be closely watching the performance during the NRL and AFL finals in coming weeks. The real test will be once the opening buzz of the new venue passes.
By then, it might be too late, Star as we know it may have also faded away.
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Originally published as Holding all the cards: Inside the battle to save The Star
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