By Colin Kruger
The Star Entertainment Group is chasing hundreds of millions of dollars in extra funding from investors as the embattled casino operator fights the clock to stave off financial collapse.
Discussions with its major investors, such as pokies billionaire Bruce Mathieson, continued deep into Sunday evening ahead of the expected release of Star Entertainment’s annual results on Monday.
A fresh injection of cash into the business would allow Star to secure its ongoing viability after a second probe into the company’s culture found it unsuitable to hold a casino licence.
Mathieson, with an estimated wealth of $2.5 billion, is one of the investors to have backed Star’s previous rounds of capital raising last year, which netted close to $1.5 billion. The casino operator’s business is currently worth just $1.3 billion, based on the last trading price of its stock at 45 cents.
Star Entertainment’s new chief executive Steve McCann is trying to financially stabilise the casino operator while the retention of its Sydney licence is still in doubt. Credit: Dominic Lorrimer
Fund manager Perpetual has been another willing backer of Star Entertainment in recent months. Mathieson owns a 9.6 per cent stake but recently received regulatory approvals to acquire up to 20 per cent of Star’s shares. Meanwhile, Perpetual lifted its stake to 8.8 per cent in May but would need regulatory approval to lift its stake above 10 per cent.
The next 24 hours will be crucial for the casino operator, which was forced to delay the announcement of its full-year results on Friday. Star Entertainment needs to show the market it has the funding needed to stabilise its underperforming casino business while also fixing the probity issues that have left the company’s retention of its Sydney casino licence in doubt.
According to reports in the Australian Financial Review, Star is also talking to its lenders about debt relief and possible fresh funding. It is also said to be talking to the NSW and Queensland governments about tax relief.
The company was sounding out investors for a $300 million raising last week via a convertible notes issue before the final report of a second inquiry into its Sydney casino landed from Adam Bell, SC, on Friday. While the report said Star Entertainment was still unfit to hold a licence, it stopped short of recommending the licence be revoked.
Star’s latest results are expected to reveal massive writedowns of its newly opened Brisbane casino, Queen’s Wharf, which cost nearly double the initial $2 billion estimate, and at a time when casinos are underperforming across the country due to the cost of living crisis and anaemic tourist interest. The Queen’s Wharf precinct is a joint venture with Chow Tai Fook Enterprises and Far East Consortium.
Star Entertainment chief executive Steve McCann, who previously led Crown Resorts through to its takeover by US private equity group Blackstone, joined the company in June.
“I recognise that there are many complex issues and challenges for the company to address,” McCann said at the announcement of his appointment.
“I am committed to working with the board and the various stakeholders to help drive change, restore confidence and achieve a sustainable resolution.”
Star Entertainment will also have to contend with the soon-to-be-implemented cashless gaming cards, which are designed to stop money laundering and address problem gambling on poker machines but will hit the company’s pokie revenues in Sydney.
Earlier this year, Star issued a downgrade saying it now expects to generate just $1.68 billion in total revenue from its two casinos in Queensland and its casino in NSW this financial year. This is a fall from $1.8 billion in 2023, which was originally thought to be the low point.
The Star recorded a total loss of $2.44 billion in 2023. Its then CEO, Robbie Cooke, was adamant at the time the group would do better this year.
On top of its underperforming casino business and the remediation needed to retain its casino licence, Star also faces further fines, including from the money laundering regulator AUSTRAC. Last year, Star provided for fines and penalties of $150 million from alleged non-compliance with anti-money laundering laws in its financial report for the half-year ended December 31, 2022, after ASIC raised concerns.
Gaming analysts from Macquarie estimate the AUSTRAC fine could hit $350 million, but another significant issue is what cost-cutting is needed to keep it in line with structurally lower revenues next year.
“Star Entertainment has attractive long-duration casino licences across Queensland and NSW, but there are near-term uncertainties on the earnings, and a long list of outstanding issues which need to be cleared before we can get comfortable with the investment thesis,” Macquarie said.
Star also faces class action lawsuits on behalf of investors who have watched the stock plunge from a pre-pandemic high of $4 to just 45¢ as of last week.
Star declined to comment on Sunday.
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