Troubled casino group Star Entertainment Group is looking to raise $800 million in new equity in what is effectively a bailout after revealing a massive $1.3 billion loss for the six months to December 31.
The bailout will come in the form of new capital organised by investment banks and brokers, Barrenjoey and Macquarie Capital and is the outcome of years of poor management and poor board oversight of its Sydney and Queensland casinos.
Shorn of one-off costs and impairments, Star claimed it swung to a profit in the December half, helped by strong performances across all its segments as Covid lockdowns and other restrictions vanished.
But that was an unrealistic view of the company’s performance – the equity injection is the real story as the company and its advisors attempt to plug the huge hole left in its finances by the incompetent oversight over years of money laundering at its Sydney, Brisbane and Gold Coast casinos.
The December half saw Star cop adverse findings of two state inquiries (in NSW and Queensland), the loss of its coveted casino licences and the prospect of potential fines that may total hundreds of millions of dollars. NSW also revealed plans to raise taxes on parts of the Star, Sydney’s operations.
The group said its earnings before interest, tax, depreciation and amortisation- the metric most heavily watched by investors-increased 550% on the prior COVID-19 affected half to $199.7 million for the six months to the end of December while the company’s statutory revenue increased by 75% to $1 billion.
Star posted $43.6 million in normalised net profit after tax for the six months to December 31, compared with $73.7 million in losses last year.
However, The Star’s overall revenue slipped by 1% from pre-pandemic levels in the December half, with poor performance at its flagship Sydney casino offsetting the strong performance in its two Queensland casinos.
The Gold Coast casino’s revenue increased by 30% on 2019, its highest level on record, and Treasury Brisbane’s revenue increased by 9% – both due to the easing of Queensland’s border restrictions during covid and a surge in domestic and inbound international travel in the half.
The killer figure in the result was the $1.3 billion in significant items. That is why the company halted trading in its shares on Thursday ahead of what it said would be an announcement regarding “capital structure initiatives”.
In the past six months, The Star’s share price has fallen by more than 65% to a low of $1.28 and its market capitalisation has plummeted from $4 billion in 2021 to $1.4 billion.
No wonder its banks pushed for the recapitalisation idea, according to market reports.
Local financial services firm Barrenjoey and Macquarie Capital are working with The Star on a reported $800 million equity raising. American distressed debt investor, Oaktree Capital Management has been ruled out of the discussions to pay down The Star’s debt via a convertible note deal.
The earnings hit is only expected to come in at $1.6 billion if the NSW government proceeds with a proposed tax rise on casino table games and poker machine earnings. But that might not happen as soon as thought with more talks rumoured with the NSW Government.
The value of the Star in Sydney was slashed by a net $988 million after tax.
The Star did not declare an interim dividend and that’s no wonder given the $800 million bailout and assistance from bankers and others until at least 2025 to give the company time to trade out of its problems.
The $800 million equity raising is comprised of a $685 million 3 for 5 pro rata accelerated non-renounceable entitlement offer and a $115 million institutional placement. The raising will be done at $1.20 a share. Star shares closed at $1.52 on Wednesday.
Covenant relief secured from both bank lenders and holders of its US private placement note holders through to June 2025.
Star said the net proceeds from the Equity Raising will be used to repay debt and increase liquidity and the “capital structure initiatives provide increased financial flexibility to meet capital requirements provisioned for and help navigate a range of operating and regulatory uncertainties.”
The capital raising is more a life buoy than a lifeline and existing shareholders who don’t take up their shares face a huge dilution.
