The ASX, ASIC and the board of Star Entertainment will have a very difficult decision or three to make this week ahead of the suspension of Star’s Sydney casino licence on Friday for at least 90 days, along with the installation of a manager independent of the company.
As well, the company’s banks, led by the ANZ will have tough decision to make as well about whether to continue financing Star through the suspension, or to rework its current support.
Trading in Star shares was halted ahead of the market open on Monday at the company’s request. The halt lasts till tomorrow (Wednesday) but given the enormous uncertainty, it could be extended to allow time for the situation to be sorted.
The NSW casino regulator on Monday confirmed it had suspended the gaming licence of Star Entertainment’s Sydney casino and hit it with a record $100 million fine for compliance failures.
NSW Independent Casino Commission chief commissioner Philip Crawford announced the penalty saying the entertainment venue at Pyrmont could remain open without gaming.
“We’ve decided to impose a fine of $100 million on The Star, and secondly, to suspend the Star’s casino licence,” he said. The suspension is effective from 9am on Friday.
At that point, the NICC will install a manager, Nicholas Weeks, to oversee The Star’s casino business.
This means casino will be able to remain open for at least 90 days. Mr Crawford said that period could be extended.
With Star shares suspended until Wednesday it is unclear whether the ASX and ASIC will allow trading to resume with Star obviously in no fit state to perform given its major area of business – gaming – will not be permitted until late January at the earliest.
On top of this, there’s the uncertainty of the situation in Queensland where Star faces possible fines over the poor administration of its Brisbane and Gold Coast casino businesses and some sort of fine and perhaps a duplication of the suspension of its gaming licence.
The situation with its banks is also uncertain. A bank lending group have allowed Star to trade since 2020 without twice a year covenant tests on their loans (those covenants restrict the size of Star’s debt to a multiple (2.5 times) of 12 months trailing earnings before interest, tax, depreciation and amortisation).
That has forced Star to suspend paying shareholders cash dividends but allowed it to run a higher-than-expected debt level to get through the vagaries of the pandemic and its variable lockdowns in NSW and Queensland in the past couple of years.
But as conditions improved this year (as the management of the Star casino and the gaming activities there were being probed by the NSW Government’s special inquiry) the banks relaxed the covenants from 2.5 times trailing EBITDA to 2.8 times annualised second half EBITDA (for the six months to June 30).
Star said at June 30 this year it had “Substantial liquidity – $513m in cash and undrawn facilities.”
The cash pile and the more relaxed loan covenants were of course before the fine announcement and the indefinite suspension of the licence from this Friday.
Just what the company’s banks and the regulators allow to happen from today (Tuesday) to Friday at 9am remains to be seen.
A decision on the current suspension might clear the air but there doesn’t appear to be much clear air surrounding the company and the suspension will put a big hole in its December, 2022 interim results and the June 30, 2023 full year figures.
AAP reported that on Monday Mr Crawford said it was no longer in the public interest that Star – which employs 8000 staff in Sydney – remained in control of the casino licence. He said the company’s public apology and acknowledgement of serious wrongdoing had saved the licence from being scrapped.
“The Star Casino will remain open and all staff will remain employed,” he said.
“The Star’s licence is suspended and the manager will hold a casino licence.”
In response to the inquiry, the Star Entertainment Group said it had taken “significant and urgent remedial steps” and would do “whatever necessary” to “restore” the casino to suitability.
But Mr Crawford said he was not satisfied with Star’s reform plan.
“The remediation plan contained in the Star’s submission did not make much sense without the leadership of a competent and experienced CEO,” he said.
