Star Entertainment, once a titan in the Australian casino industry, finds itself in a precarious position as it grapples with a banking dispute that has delayed its financial results. The company’s anticipated earnings report, which was expected to provide some respite to its beleaguered investors, is now clouded by unresolved issues with its bankers. This latest setback echoes previous challenges and raises questions about the future of the casino group.
The delay in finalizing the accounts has significant implications. It prevents regulators from initiating probity checks on Bally’s Corporation, the American firm poised to take control of Star. Bally’s, in collaboration with local pub mogul Bruce Mathieson, has already invested approximately $300 million to stabilize Star’s operations. However, before the acquisition can proceed, Bally’s must satisfy regulators in New South Wales and Queensland of its financial suitability and long-term commitment to the slimmed-down Star.
Bally’s Financial Challenges
While the acquisition of Star may seem minor for Bally’s, the American company is facing its own financial hurdles. Bally’s is currently undergoing a significant overhaul of its Chicago casino, a project that has strained its financial resources. The company’s most recent financial statements reveal over $11 billion in liabilities, with long-term debt accounting for half of that figure. This debt burden is ten times the market value of Bally’s, highlighting the financial pressures the company faces.
Liquidity is another concern for Bally’s, with nearly $1 billion in short-term debt due within the next year, against $490 million in easily liquidated assets. In February, these financial strains led ratings agency Fitch to downgrade Bally’s debt to B-, a move that could complicate its plans to revitalize Star’s loss-making operations and present a solid business plan to Australian regulators.
Star’s Immediate Challenges
Star’s directors are confronting more immediate challenges. Just weeks ago, Star’s former partners in the Queen’s Wharf development in Brisbane threatened to abandon their purchase, jeopardizing Star’s survival. Now, the banking syndicate has intensified the pressure on Star’s directors, refusing to grant waivers on covenants over $430 million in loans, a move that prevents directors from signing off on the accounts.
According to sources close to the situation, the banks are seeking either additional assets as security or more punitive fees. Last year, Star was compelled to pay a staggering 13.5% interest on refinanced debt, including a 1% quarterly payment to waive covenants. These waivers are believed to expire at the end of September, and without them, Star will breach its debt covenants, forcing it to release unaudited accounts.
In a statement to the ASX, Star acknowledged its reliance on lender support, including covenant waivers after June 30. The company is in discussions with lenders but has so far resisted terms it deems unacceptable. To keep the Bally’s deal on track, Star may need to secure additional cash.
Potential Legal and Financial Repercussions
Bally’s involvement in Star’s ongoing corporate saga comes with its own risks. The most significant threat is the potential fine for Star’s violations of the Anti-Money Laundering and Terrorism Financing Act. The case is currently before the Federal Court, with AUSTRAC, the federal agency responsible for enforcing these laws, advocating for a fine of around $400 million due to Star’s history of hosting criminal syndicates from Macau.
Star has provisioned for a $100 million fine but has pleaded for leniency, arguing that a larger penalty could push the company into receivership.
This plea may fall on deaf ears, especially considering that Star’s competitor, Crown Entertainment, faced a $450 million fine two years ago for similar offenses. Insiders report that Bally’s chairman, Soo Kim, has indicated that a fine exceeding $200 million could jeopardize the deal. A decision on the fine is expected in September, leaving room for further developments in this unfolding drama.
As Star Entertainment navigates these turbulent waters, the outcome of its financial and legal challenges will significantly impact its future and the broader casino industry in Australia.
