SLIGHT RELIEF FOR STAR AS QLD RULES OUT CASINO TAX RISE
Elouise Fowler And Mark Ludlow
The Queensland government has ruled out an increase in casino gaming taxes ahead of the state’s budget in June, handing a small reprieve to Star Entertainment as the company’s shares slid more than 13 per cent yesterday. The collapse in the Star share price – which is down 32 per cent since the start of trade on Monday – follows investor concerns about the company’s debt levels and the risk profits could have been crunched further if Queensland followed NSW in raising taxes. But a spokesman for Queensland Treasurer Cameron Dick told The Australian Financial Review yesterday that no tax increase would be included in the state’s June budget. As first reported by Street Talk, fund managers are running the numbers on potential capital raisings, with brokers highlighting the prospect Star may need to issue up to $500 million in shares in a bid to recapitalise the group. Brokers at Credit Suisse warned Star’s leverage ratio would likely near its debt covenants with more cash outflows in the next financial year, leading to the company raising $200 million ‘‘ to clear the bar’’ . ‘‘ But there is a possibility that the board may want to really reduce leverage – especially in light of a worst-case NSW tax outcome,’’ the analysts told clients yesterday. ‘‘ That could mean a $500 million equity raise.’’ Macquarie’s analysts estimate Star will need a $400 million equity raise to meet covenants. The company doesn’t publish its covenants, but investors and analysts believe they’re likely to include net debt/EBITDA at about 3.5 times or less. Macquarie said its numbers included $207 million of fines in NSW and Queensland, but excluded other monetary penalties, including any the company reached with financial crimes regulator AUSTRAC. On Monday, Star commenced an ‘‘ urgent review of its operating model and assets’ ’ after an earnings hit following the opening of Crown Resorts’ gaming operations in Sydney, as well as a blow-out in compliance costs and a looming NSW tax increase. Star shares fell 20 per cent on Monday , and were down a further 13 per cent yesterday to close at $1.29. They have halved since the NSW government announced the tax regime changes on December 17. The company expects to post a non-cash impairment charge for its Sydney casino of between $400 million to $1.6 billion, with the high end of this range based on the implementation of duty rate increases from 2024. The low end of the range assumes no change in NSW casino duty rates but includes remediation costs associated with hiring compliance staff, banning dodgy high rollers and ditching some gambling incentives to entice punters. ‘‘ If implemented in their current form, the proposed duty rate increases would have a significant adverse impact on the profitability of The Star Sydney,’’ the company said in a statement . ‘‘ In this scenario, The Star intends to undertake an urgent review of The Star Sydney’s operating model and assets, with a view to maximising value for the group’s shareholders.’’ Analysts at Macquarie had suggested the Queensland government could increase its tax rate on the company’s lucrative Gold Coast and Brisbane casino permits following similar moves in NSW and Victoria. Every 1 per cent increase will hit earnings by $6m in the next financial year. ‘‘ With Victoria and NSW having amended or proposing to amend casino gaming tax rates, we see a risk that Queensland considers a change as well,’’ the investment bank’s analysts told clients, noting that the rate of some 26 per cent was below that of other states with casino licences. A spokesman said the Queensland government was confident the $3 billion Queen’s Wharf development in Brisbane would be completed regardless of any financial troubles at Star. Copyright © 2023 Australian Financial Review
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