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Star Entertainment's financial woes deepen

Star Entertainment is facing a severe financial crisis, with insolvency looming as the company struggles to stay afloat amid a wave of regulatory scrutiny and a sharp decline in revenue.

The company, which saw its share price plummet to a record low of 10 cents this month, warned in its December cash flow report that there is "material uncertainty" regarding its ability to continue operating as a going concern.

Australia's largest casino operator’s financial woes stem from several factors.

A series of damning public inquiries found Star had failed to adequately address money laundering and criminal activity within its casinos, resulting in hefty fines and increased regulatory oversight. This includes a $100 million fine from NSW and a $100 million fine from Queensland, along with significant operational restrictions.

Meanwhile, revenue fell 15% in the December quarter due to tighter regulations, including mandatory carded play and cash limits in NSW, which have deterred high-rolling gamblers.

The company has also been burdened by significant debt, including the $3.9 billion Queen's Wharf project in Brisbane, which experienced significant cost overruns.

Star has been rapidly burning through cash reserves, raising concerns about its ability to meet its financial obligations. It has sought financial assistance from the NSW and Queensland governments, requesting a temporary pause on gaming tax payments. While Queensland Premier David Crisafulli has indicated a willingness to consider requests, NSW Premier Chris Minns has ruled out further government support.

Given the predicament, Morningstar analyst Angus Hewitt has predicted a 50% probability of Star falling into administration, wiping out equity holders.

Market speculation suggests potential buyers for Star's assets, including US private equity giant Blackstone, pub baron Bruce Mathieson, and Malaysia's Genting Group.

The United Workers Union has raised concerns about the potential impact of Star's financial difficulties on its employees, advocating for job security and support measures.

Staff has also expressed frustration regarding executive salaries and bonuses.


 

Jonathan Jackson, 21st January 2024