Source : THE AGE NEWS
There is an adage that the sharemarket is like a casino. Taking a punt on whether our own major casino operator, Star Entertainment, will survive is therefore akin to betting on a betting shop. It should come with a warning: suitable only for the adrenaline-charged or risk-addicted – the kind of people who in their spare time enjoy driving racing cars or bungee jumping.
For the board and management of Star, keeping the business afloat is a high-wire act that includes a race against time.
The casino operator is in a race against time as it burns through cash.Credit: Edwina Pickles
Star has been in survival mode for more than a year, but its prospects have continued to deteriorate to the point that it may need luck to avoid falling into the hands of administrators.
Every time Star issues a financial update it feels like it couldn’t get any worse – but then it does.
A stock exchange announcement on Wednesday evening conveyed that the company was burning through cash at a rate of $35 million per month and now has only $79 million left in the cash kitty – an amount that gives it only a couple of months left before it runs out. This is after it received $100 million in emergency funding from lenders in December last year.
Steve McCann, the new CEO of Star Entertainment Group.Credit: Dominic Lorrimer
The good news is that Star has arranged a debt facility that could provide it with an additional $100 million. The bad news is that there are plenty of conditions attached to getting that money, and at this point many have not been satisfied.
The creditors are acting more like pay-day lenders than the usual syndicate corporate lenders – which is unsurprising given the risk. The loans attract an interest rate of more than 13 per cent, there is plenty of security attached, and the company must raise at least $150 million in subordinated capital before the end of March and sell assets to meet the onerous conditions.
The company said that meeting these conditions was “challenging”.
Needless to say the extreme pressure to sell assets places Star in a poor negotiating position – the equivalent of a forced seller.
Meanwhile, under new chief executive Steve McCann, the company has vowed to cut operating costs, but this strategy has been challenged by the additional expenses it continues to incur to meet regulatory changes including the introduction of carded play.
But lenders are Star’s only remaining hope. It is not in a fit financial state to seek capital from shareholders and the NSW and Queensland governments have indicated that any form of tax breaks for the casino is off the cards.
Star is a big employer and tourist drawcard in both states – with its flagship Sydney casino and large casinos in Brisbane and the Gold Coast. But the governments recognise that bailing out casinos is a politically dangerous move. They no longer seem to have a dog in this fight.
Should Star lose the support of its lenders and land in administration, it would be administrators who would seek to sell the company or break it up into bite-sized assets.
The company owes $10 million to the NSW casino regulator even before a yet-to-be-determined AUSTRAC fine (which could be as much as $300 million) has been levied.
It will also owe McCann as much as $10 million given he signed on to run Star with a generous contract that anticipated several outcomes including administration.
But the board has not yet raised the white flag. Its statement this week said it “continues to explore other liquidity solutions”.
It said the fall in cash reflected continued difficult trading conditions, thus its ability to trade its way out of trouble appears weak.
Indeed, a report from Macquarie Group analysts at the end of last year predicted that the company would still be delivering net losses to the tune of more than $100 million in financial year 2027.
All said, the 25 per cent fall in Star’s share price on Thursday could have been worse. Time will tell.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
