Star faces collapse amid equity wipe-out, says Morningstar

Shares in Star Entertainment continue to slump, with warnings the company will be lucky to survive until the end of February.

Star is struggling to stay afloat.

Shares in troubled casino operator Star Entertainment continue to slump, with warnings the company will be lucky to survive until the end of February without a financial lifeline.

Morningstar analyst Angus Hewitt, in a note to investors, said at Star’s current cash burn, the company would be lucky to make it to its interim results scheduled for February 28. “Operating conditions are weak, with mandatory carded play and poor consumer sentiment,” said Mr Hewitt. “We now incorporate a 50 per cent probability that Star falls into administration, and equity holders are wiped out.”

Star shares slumped another 15 per cent to 11 cents on Friday morning after a 33 per cent loss on Thursday. Star warned earlier this week it had burned through more than $100m of its dwindling cash reserves in just three months. 

Star said its available cash at the end of December had dropped 46 per cent to $79m — a reduction of $70m — from the previously reported position at September 30.

New Star Entertainment Group chief executive Steve McCann.

“We still expect a medium-term recovery in operating conditions for casinos,” said Mr Hewitt. “However, Star needs a more immediate solution, and we believe it is unlikely it can trade itself out of this predicament.”

Pub billionaire Bruce Mathieson, the biggest shareholder in Star Entertainment, said Thursday the troubled casino operator would either “go bankrupt or be bought” unless it can improve its finances in the coming months.

The company has already accessed half of a $200m financial lifeline announced last year, with growing doubts it can obtain the second half.

Mr Mathieson, whose family company own 9.59 per cent of Star, said he would not be interested in putting any more money into the company until its financial future was clearer. He said the biggest issue remained a looming fine from AUSTRAC for breaches of counter-terrorism and anti-money laundering laws, for which Star had provisioned $150m.

But, Morningstar says the fine could be as much as $330m, including payment terms. “The cash burn is worse than the market expected,” said Mr Hewitt.

“Star is struggling to fulfil conditions to unlock the second $100m tranche of its debt facility. This includes additional subordinated capital of at least $150m, likely to be equity.”

Originally published as Star faces collapse amid equity wipe-out, says Morningstar