The $450 million penalty handed to Crown Resorts for breaches of anti-money laundering and counter-terrorism laws is pointing to a lower-than-expected fine for its ASX-listed rival, Star Entertainment.
That’s the view of Donald Carducci, an analyst at JPMorgan, who said thesettlement between the Blackstone-owned Crownand AUSTRACwas “less severe than feared”.
“The market capitalisation of Crown, when they delisted, was $8.9 billion, so the final $450 million is 5 per cent market capitalisation,” he toldThe Australian Financial Review.
Others in the market, however, are more pessimistic. Morningstar’s Angus Hewitt said Crown’s fine “gives you a tighter, indicative range of what it means for Star”.
“Is [Star’s] $150 million provision sufficient for now? Maybe. But in light of the $450 million [fine handed to Crown Resorts], it’s probably in the lower end … of the likely fine,” he said.
Star is in a significantly more difficult financial position than Crown, with theFinancial Review’s Street Talk column reporting last week that a handful ofcredit funds were preparing financing packages to offer the business amid concerns that an equity raising would not be enough to fix its balance sheet.
Both Crown and Star allowed money laundering to take place at their casinos as they attempted to lure high-spending gamblers to their venues. Separate inquiries in NSW, Victoria, Western Australia and Queensland resulted in findings against the companies and significant change in management and boards.
On Tuesday, Federal Court judge Michael Lee signed off on the $450 million fine levied against Crown by AUSTRAC, the nation’s financial crimes agency. However, Justice Lee said the regulator should consider whether it was being a “soft touch” by always reaching an agreement on a fine.
In the two-day hearing, Justice Lee pointed out that AUSTRAC had “never litigated a contested hearing or advocated for orders different to that proposed to contravener on final hearing”.
But JPMorgan’s Mr Carducci said Crown had provisioned $600 million in penalties but only received a fine of $450 million. “There’s an argument to be made that there’s probably downside to the $150 million,” he said, a reference to the provisions made by Star for its penalty.
Star shares have remained largely unchanged this week at $1.06.
“Star is currently in a challenging position. In the course of 56 days ... they downgraded EBITDA guidance for the full year by over $60 million,” added Mr Carducci.
“There’s a disconnect between the equity valuation versus how it’s trading. A lot of that overhang doesn’t have anything to do with the AUSTRAC fine. It’s most likely due to the tax resolution around the pokies.”
In February, Star secured a $1 billion lifeline to steady its operations after its connections to criminal gangs left it open to major fines, and as the gaming giant braces for a significant tax hit on its flagship Sydney casino.
Two existing investors – Hong Kong-based Chow Tai Fook and Far East Consortium, the former with alleged links to convicted Macau junket operator Alvin Chau – took up $80 million of the equity raising.
However, Queensland regulators are still considering whether Chow Tai Fook is a suitable shareholder.
A spokesman for the Office of Liquor and Gaming last month said it was still conducting a review into the company, controlled by the powerful Cheng family.
Last week, Star reported a $1.26 billion loss in the six months to December 31, driven by a $988 million write-down of its Sydney casino. The company has also won concessions from lenders – owed a net $1.1 billion – to exceed its debt covenants until June 2025.
Appearing before the Federal Court, Crown’s counsel, Philip Crutchfield, KC, said the $450 million fine was agreed to only on the condition it would be paid over a two-year period, with an initial tranche of $125 million.
“We simply would not have agreed to pay this amount if we didn’t have the payment plan, and AUSTRAC knows that.,” he said.
“If your honour pulls on that thread of the agreement, that pulls apart the foundation stone for the agreement. We can’t afford to pay more than we’ve agreed.”
(20min delay)