After watching Star Entertainment Group's (ASX: SGR) share price rise over 8% in early afternoon trade, investors may be left wondering if news of the casino operator’s death has been vastly exaggerated.
Just when the market had all but relegated the embattled company to pending voluntary administration, management today renewed plans to fight their way out.
Having burned through $100 million in the last quarter of 2024 – which coincided with a 15% fall in revenue to $299 million in the period - Star barely has the necessary cash ($78 million) to survive the first quarter of 2025.
This explains why the market clearly took some solace from its plans, announced today, to offload its Sydney Events Centre for $60 million.
Plans to offload the Sydney Event Centre follow the sale of Star’s heritage-listed Treasury Casino Building for $67.5 million.
More asset sales
Equally encouraging for shareholders, Star’s CEO Steve McCann reiterated plans to continue offloading assets to improve its liquidity. McCann has signaled that non-core assets, like the company’s hotel properties on the Gold Coast and Sydney are also likely to be sold.
However, given that the Sydney Events Centre - by Star’s own estimates - was worth around $100 million, the bigger issue for shareholders could be the discount Star is willing to put on future assets to allow for a quick sale.
Interestingly, while McCann has registered no interest in selling core assets, the company’s Hong Kong investors may have other plans. In a recent visit to Brisbane, Chow Tai Fook Enterprises and Far East Consortium mooted the idea of putting the coveted Queen’s Wharf development up for sale — only weeks after its grand opening.
Debt raising
The proceeds from Star's Sydney Events Centre sale are destined for a special group account to help the company comply with conditions relating to a previous $100 million debt arrangement which has already been spent.
Assuming the conditions of that loan can be met, there’s an additional $100 million to draw down on.
Beyond the cash needed to continue operating and pay regulator fines, the company’s more pressing goal is refinancing the $1.6 billion loan it took out to pay for its spanking new Queens Wharf casino in Brisbane.
Meanwhile, in an 11th hour effort to get the company’s finances back on track, Star’s lender group, including Macquarie, Deutsche Bank, Washington H Soul Pattinson, Westpac, Perpetual, and Regal Partners – collectively owed around $400 million – have engaged restructuring lawyer Nikki Smyth a partner at Clifford Chance.
However, Star’s lenders [and shareholders] have already balked at putting in more money, and, having lost patience with Star’s turnaround plan, it’s understood that smaller lenders simply want out.
In a novel twist, New York-based Cerberus Capital Management is sounding out Star’s lender syndicate about banks or credit funds willing to sell their debt. But even if Cerberus or other distressed debt investors end up with a major slice of Star’s senior loans, it remains to be seen if these deals will pass muster with the existing loan provider.
New checks and balances
Meanwhile, Star’s Qld and NSW casinos remain under the supervision of a government-appointed manager following a slew of regulatory misdemeanors in the wake of the infamous Bell II inquiry.
It’s understood that gamblers at Star’s flagship Sydney must now use a card-based system, not cash. The Sydney casino is also subject to a strict cash limit, which will fall from $5000 to just $1000 in August this year, scaring off high-rolling Asian investors.
As a result of these and other regulatory measures, Star Sydney recorded a loss of $25 million, with the group posting an earnings loss of $26 million for the last six months.
By comparison, in the six months to December 2019, Star Sydney delivered earnings of $187 million, while group earnings surged to $243 million.
Star Entertainment’s market cap is $351 million, and the share price is down 76% in one year.
Consensus on the stock is Moderate Sell.
This article does not constitute financial product advice. You should consider independent advice before making financial decisions.
