Australia’s Star Entertainment Group on Thursday reported a net loss after tax of AU$1.26 billion (US$858 million) for the six months to 31 December 2022, a direct result of regulatory action taken against it for failings uncovered across recent inquiries in NSW and Queensland.
A day after entering a trading halt amid reports the company was set to announce an AU$800 million (US$545 million) equity raising to help pay down its debt, Star today confirmed both the equity raising and the 1H23 loss, which includes AU$1.31 billion (US$892 million) in “significant items”.
“Significant items include impairment of the Sydney property assets, penalties, costs associated with the regulatory reviews, contribution towards the Bell Review [and] accounting for software changes,” Star said.
According to details contained within its results announcement, Star will now undertake a capital restructuring via AU$800 million in equity raising – comprising an AU$685 million (US$467 million) entitlement offer and AU$115 million (US$78 million) institutional placement – while covenant relief has been secured from its bank lenders. The proceeds of the equity raising will be used to pay down debt and increase liquidity, the company explained.
Star also revealed that its strategic partners, Hong Kong-based Chow Tai Fook and Far East Consortium, have provided binding pre-commitments for around AU$80 million (US$55 million), “which equates to their functional pro-rata entitlement in the equity raising.”
Star said, “These capital structure initiatives provide increased financial flexibility to meet capital requirements provisioned for and navigate a range of operating and regulatory uncertainties.”
Star had entered a trading halt on Wednesday after The Australian Financial Review reported the company was in talks with US private equity giant Oaktree Capital Management over a substantial capital injection. It has since been reported that talks between Star and Oaktree stalled with the casino operator instead approaching its existing investors to raise those funds.
Star last week issued an earnings and outlook update in which it warned the company faced a non-cash impairment charge in relation to its NSW business, The Star Sydney, of between AU$400 million and AU$1.6 billion (US$277 million and US$1.12 billion) due to regulatory fines and a planned increase to the NSW casino duty rate on poker machines.
“The Star and the NSW Government are in discussions on the implementation of the proposed changes to NSW casino duty rates,” Star said in the outlook.
“The Star understands the proposed changes will require legislation to be passed by the NSW Parliament, unless the NSW Government and The Star reach agreement.
“If implemented in their current form, the proposed duty rate increases would have a significant adverse impact on the profitability of The Star Sydney, further compounded by the changing operating and competitive environment as described above.
“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.”
Star has also been hit with two AU$100 million fines, one each in NSW and Queensland, after being found unsuitable to retain its casino licenses and is facing further disciplinary action from financial crimes watchdog AUSTRAC. The company’s casinos are currently being operated under the watch of an independent monitor, Nicholas Weeks, as Star looks to return to suitability.
Star’s regulatory woes overshadowed an otherwise strong recovery at its three casinos – The Star Sydney, The Star Gold Coast and Treasury Brisbane – with the company reporting a 75.6% year-on-year increase in revenue to AU$1.01 billion (US$688 million) in 1H23. This included record domestic revenue in Queensland with revenues at The Star Gold Coast up 30% and in Brisbane up 9%. The Star Sydney saw revenues fall by 13.5% due to “regulatory changes and competition”.
Group-wide EBITDA was up 551% to AU$199.7 million (US$136 million), however Star said net debt currently stands at AU$1.11 billion (US$756 million).
In announcing its results, Star said it was actively working to execute on priorities identified by Mr Weeks as a base to prepare and develop its long-term remediation measures.
“The priorities of the manager are for the group to enhance its current control environment, implement new internal control manuals, uplift the financial crime program, conduct a comprehensive root cause analysis, uplift management capability and undertake comprehensive reform of the group’s culture.
“These priorities are the foundation to effect significant improvement in risk, governance, culture and controls of the group, with the group’s objective of returning to suitability to hold its casino licenses.”
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