News: SGR Star Entertainment expects hit from New South Wales casino tax reform, page-203

STAR ENTERTAINMENT VS THE MARKET AS HEDGE FUNDS PILE IN

There’s a delicious markets game brewing at Star Entertainment, which is quickly becoming the corporate story of this reporting season. Star revealed its world of pain on Monday, downgrading earnings forecasts and talking about asset writedowns and tax changes, all of which put the frights through investors. The one thing it didn’t mention was its balance sheet – and it turns out it didn’t have to, because it was already on fund managers’ minds. It’s generally accepted in buy- and sell-side lands that Star is short at least a few hundred million dollars, given fines coming its way and its earnings outlook. While it’s barely had a chance to talk to its lenders about covenants, waivers and the like, institutions have been quick to bake in expectations of a capital raising. In markets land, that’s a free hit for the hedge funds, who piled bets against the casino operator again yesterday. About 65 million shares changed hands, or 7 per cent of the register, as the stock plummeted. The big insto desks, UBS and Macquarie, led the trade. [Macquarie also topped market share on Monday]. The next move is Star’s . Clearly, it needs to address its balance sheet situation, and the sooner the better for investors. As soon as multiple sell-side analysts are publishing notes on an expected equity raising, the horse has bolted. That’s what happened yesterday. Credit Suisse and Macquarie both ran the numbers, saying there could be the need for a $400 million to $500 million equity injection. It’s not the time to be carrying too much debt, with investors (and banks) skittish about rising rates and costs, and a softening consumer. It’s been a few years since we last saw a big equity recapitalisation and odds are shortening that the next one will be at Star. Cooper Investors and a bunch of industry funds are among its biggest shareholders. New Star chairman Ben Heap and CEO Robbie Cooke need to pull a rabbit out of the hat – and quickly. Because while the market’s feasting on their company, shareholders are being hit hard. Copyright © 2023 Australian Financial Review