‘Cleanskin’ should take over stricken Star group, says Taylor Collison analyst Andrew Orbach

Star Entertainment Group may be fatally wounded after three weeks of damaging testimony at the so-called Bell II inquiry and calls have emerged for a “cleanskin” owner to take control of the company.

The inquiry wrapped up on Friday with confidential testimony from a restructuring expert who has worked with Ansett, Virgin Australia and the Whyalla steelworks., fuelling concern Star may not have enough in the tank to survive.

Star, which faces losing its Sydney casino licence following Adam Bell’s second inquiry, needs to refinance more than $1bn worth of debt over the next 18 months for its new Queens Wharf project in Brisbane.

Testimony to the inquiry by a succession of former Star executives has revealed a deeply conflicted leadership at war with the regulator, and allegations of fraud, falsification of safe gambling welfare checks and spying.

The past two days of the inquiry this week were held in a private session with KordaMentha restructuring partner Sebastian Hams, who was called to discuss the finances of the group. Mr Hams has 20 years’ experience in large-scale restructurings, including that of Ansett and Virgin Australia.

As investors desert the company – the shares are down almost 65 per cent in the past year – Macquarie analysts have said that Star has about $1.6bn of debt for Queens Wharf that needs to be refinanced by December 2025. “The second NSW casino inquiry has raised the risk that Star may lose the Sydney casino licence,” Macquarie said in an investor note. “There has also been another purging of management, and board changes are likely.”

With the odds shortening on the closure of its flagship Sydney casino if Mr Bell gives a thumbs down to its licence suitability, Taylor Collison gaming analyst Andrew Orbach said the company should be looking for a new owner.

“It should be looking for a new owner, either for the parent or the Sydney business,” Mr Orbach said in a note to clients.

“Blackstone’s purchase of Crown Resorts helped as a circuit-breaker which allowed Crown Melbourne to retain its licence. The Sydney licence has some value but perhaps best extracted by Star Entertainment by selling it to a new cleanskin owner, which will have a much better chance of making a go of it.”

Mr Bell this week launched a broadside against the slow progress of reform at Star, comparing it unfavourably with Crown, which recently regained its Melbourne licence after two years of concerted remediation efforts by its new owners.

A clearly frustrated Mr Bell said that after his first inquiry in 2022, he expected the company would need two years to clean up its act. The inquiry revealed Star had engaged in many of the same illegal activities as Crown, raising the risks of money laundering and terrorism financing.

“Why the stark contrast between Star and Crown, which regained its Melbourne casino licence in two years?” Mr Bell asked. “Why am I now being told 20 months later that Star is at the beginning of cultural transformation?”

The biggest scalp from the Bell II inquiry has been David Foster, who stepped down as chair half way through the inquiry, amid claims he fuelled an acrimonious relationship with the NSW Independent Casino Commission (NICC).

There were shock allegations Mr Cooke and Mr Foster accessed the diary of the NICC-installed manager, Nicholas Weeks, to find out about meetings with lawyers and began “prepping for war”.

It also heard that Mr Cooke and Mr Foster contemplated a class action from shareholders against Mr Weeks and the NICC in circumstances where their public position was that they were working co-operatively to address deficiencies.

Mr Orbach said the NICC would be most concerned about Star’s attitude towards the regulator. “What Crown got right, was accepting that the Victorian regulator had to be respected and not fought with,” Mr Orbach said.

“That Foster and Cooke didn’t understand that would be concerning for the NICC because it would be wondering what the future might hold if Star was given its licence back.

“Star needs to show that it understands compliance – not just gambling compliance – as important as that is, but also in other areas, such as financial reporting.

“Those last two matters can be fixed with some judicious appointments either on staff or as subject matter expert consultants. We think Star is still in trouble. What does that trouble look like and what can be done? Bell II has not changed anything other than the public understanding of Star’s problem.”

The inquiry heard that regulatory missteps continue to dog Star, including a $3.32m fraud committed against the company involving malfunctioning cash machines that led to the chief financial officer allegedly being pressured to cook the books to make the losses more attractive on its financial reports. Star has denied any suggestion the figures were manipulated.

Separately, following an internal audit, 10 staff have been fired in relation to the falsification of welfare checks on customers who spent more than three hours gambling.

A thread flowing through much of the testimony was that Star had a very troubled corporate culture and “resented” the intrusion of regulators into its business.

Managing Values principal Dr Attracta Lagan, who was brought in as a business ethics consultant last year, said she got the impression that Star executives didn’t understand they were operating in a regulated environment and didn’t recognise the rights of the regulator. “This is very different from a free market environment,” Dr Lagan said.

“They didn’t realise how that worked and I felt there was resentment sometimes to the directions that we were giving.”

Following the end of the witness testimony, Mr Bell is now expected to hear oral submissions from the parties as he prepares to present his final report to the NICC by July 31.

Given that both Mr Foster and new chair Anne Ward told the inquiry the company was not currently in a fit state to hold a casino licence and may need further supervision by the regulator, it’s hard to see how Mr Bell’s final report will be positive.

The question is whether he will allow it another period of remediation or apply the executioner’s axe.