Star Entertainment scrambling as NSW government rejects lifeline

Star Entertainment is in emergency talks to avoid a corporate collapse after the NSW government rejected a plea for a financial lifeline, with the casino operator scrambling to access short-term debt amid an ongoing share suspension.

Star, now headed by former Crown Resorts boss Steve McCann, was scheduled to release its annual financial results on Friday.

Those results have now been delayed indefinitely amid the unfolding crisis, with the ASX suspending the company from trading on disallowed after it failed to lodge its annual financial results.

Under an agreement with the Queensland government, Star has not been able to access up to $180m in assets sales, including the offloading of its Heritage hotel and casino buildings, until the completion of Queen’s Wharf.

The project only opened last week after a two-year delay and cost blowouts. It is understood Star will not be seeking an equity injection, opting for increased debt facilities of up to $300m to withstand its current cash crunch.

The company has sought tax relief from both the NSW and Queensland governments, but any support appears unlikely.

A NSW government spokesman said it was the responsibility of The Star to maintain the financial viability of its business.

“The NSW government’s assessment is that any NSW taxpayer assistance would primarily support the Star’s Queensland expansions,” the spokesman said.

“The NSW government continues to monitor the situation.”

Queensland Premier Steven Miles said his government was having “ongoing discussions with Star regarding their tax arrangements”. “It’s too soon to say the outcome of those discussions, but the most important thing for me is making sure that those 1400 people (who work at Star in Queensland) have their jobs,” he said.

Queensland Treasurer Cameron Dick said that when a large Queensland employer encountered difficulties the government would listen if they asked for support. “However, taxes must be paid and we would expect all taxes are paid,” he said.

Other people close to the company said they were confident the company would survive but noted “there were some sharks circling”.

They said there was a lot of confidence in Mr McCann and his ability to hammer out a financial arrangement that would have The Star continue as a successful company. But the current perfect storm of regulatory issues and financial issues had thrown up challenges.

Star, which has had its share price halve in the past 12 months, went into a voluntary trading halt on Friday morning after the NSW Independent Casino Commission released the damning findings of the Bell II inquiry into its continuing regulatory failures.

Star is believed to be seeking investor and government support to prop up its ailing casino operations after the NICC said the Bell II report revealed the company remained unsuitable to hold a casino licence in Sydney.

Star has faced growing compliance costs as well as expensive delays in the opening of its flagship $3.6bn Queen’s Wharf casino resort in Brisbane.

As visitors were flocking into the just-opened project at the weekend to watch the annual Riverfire fireworks display on the Brisbane River, it is understood Mr McCann was in urgent talks with bankers and investors as he seeks to raise up to $300m in short-term lending. That cash lifeline will be vital if Star is to avoid breaching its debt covenants, with the next three to six months crucial for the future of the company.

NICC chief commissioner Philip Crawford on Friday said the Bell II report revealed a company that had not moved quickly enough to address the governance and cultural concerns raised in the first Bell report.

“It has only very recently turned its attention to dealing with challenges that should have been prioritised earlier,” he said.

“It was unclear whether The Star could feasibly operate under less supervision, when it was exhibiting past behaviours with its licence still suspended.”

The second inquiry by Adam Bell SC this year heard a litany of continuing problems at Star including fraud, falsification of gambling welfare checks and a warlike attitude to the regulator and its appointed manager Nicholas Weeks. Mr Weeks is also the manager of Star’s Queensland casino operations.

It is understood Mr McCann has been “open and transparent” with stakeholders about the need to access the funds as quickly as possible, with concerns cost-blowouts under previous management had put the company in a precarious position. If the immediate crisis could be navigated, Star could survive, given its assets exceed its debts.

Westpac and Barclays were among those underwriting a $450m refinancing of The Star’s debt facilities last year. In a trading update in June, Star warned higher costs associated with remediation as well as difficult economic conditions would continue to bite.

Revenue in the fourth quarter is expected to be down 4.3 per cent from the previous quarter and 3.3 per cent lower than the prior corresponding period. Annual group revenue would be between $1.67bn and $1.68bn, while earnings are to be in the range of $165m to $180m, Star forecast in June.

Star’s casinos in Sydney, Gold Coast and Brisbane are expected to drop more than 13 per cent, 23 per cent and 18 per cent, respectively in the quarter.