AUSTRALIA’S biggest listed casino operator, Star Entertainment Group, once had it all. Its gaming licenses stretched out for centuries. The domestic market was home to the planet’s most prolific gamblers. The company’s harbourside resort in Sydney drew a constant flow of high-rollers from China.
Now Star is bleeding cash, desperate for funding and – by some analyst estimates – a 50-50 chance of collapsing.
The company’s demise is a sorry saga of financial malpractice, deception and cultural decay. Almost A$4 billion (S$3.4 billion) has been wiped from Star’s market capitalisation since late 2021, leaving the company valued at just A$387 million.
The trouble started in October 2021, when the Sydney Morning Herald reported Star had enabled suspected money laundering, organised crime and fraud at its casinos for years. Since then, regulatory inquiries have found it unsuitable to operate its Sydney and Queensland casinos, placing them under government supervision.
The company has also churned through key executives, including two CEOs, and burned through so much cash that despite raising more than A$2 billion in equity and debt since the start of 2023, last week warned it had just A$79 million left – barely enough to see it through this quarter.
The denouement could play out within weeks. While assets such as hotels and carparks could be sold to raise cash, voluntary administration and a shareholder wipeout remains a “high likelihood”, said Morgans Financial analyst Leo Partridge. According to Morningstar, Star is so financially fragile it may not survive beyond February without some kind of lifeline.
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“Star is continuing to explore all viable options to strengthen our financial position,” chief executive officer Steve McCann said. “We are engaging with our key stakeholders to try and ensure the long-term viability of our business. Despite the financial challenges we continue to work hard to meet our remediation and cultural uplift obligations, which are critical to a sustainable future.”
Star has become a cautionary tale of the risks of chasing intoxicating – and sometimes illegal – profits from China. After a series of damning inquiries, Star casinos in New South Wales and Queensland are being overseen by government-appointed caretakers. The company has been left overwhelmed by the cost, in time and money, of overdue compliance, financial controls and regulatory fines.
“Poor governance is ultimately a big part of this story,” said Elizabeth Sheedy, a Sydney-based professor at Macquarie University’s business school and the author of the 2021 book, Risk Governance: Biases, Blindspots and Bonuses.
“It seems once you run a casino cleanly, it’s not nearly as profitable,” she said.
Star’s failure, if it comes, would mark the passing of an old guard of Australian casino operators that has been systematically dismantled by authorities in the past decade. The crackdown was spurred by revelations of questionable business practices and porous anti-money laundering policies.
Crown Resorts, Star’s domestic rival, was also subjected to successive public regulatory investigations starting in 2020, which each found the company was not fit to run casinos. Crown, which was the primary asset of Australian billionaire James Packer, was bought by Blackstone in 2022 and Packer has since largely retreated from public life.
Star itself began to unravel that same year, when yet another inquiry concluded it had faked documents, misled authorities and ignored money-laundering risks.
Perhaps the most damning revelation was that Star disguised as hotel expenses more than A$900 million of gambling funds that were withdrawn by customers using Chinese bank cards. This was a breach of Chinese capital controls. Star also allowed a Macau-based junket operator to run a prohibited money-for-chips desk at its Sydney casino.
The discoveries sent Star into a spin from which it has never recovered.
The difficulties were compounded last year when a second regulatory inquiry found Star still was not fit to operate its flagship casino in Sydney. The investigation singled out Star’s dysfunctional leadership, questionable ethics and weak culture.
Star’s woes are all the more startling given the company’s former dominance in a country that loses more money gambling per capita than any other in the world. Gambling losses in Australia grew 14 per cent to A$31.5 billion in the year ended June 2023, the most recent government data available. That equated to more than A$1,500 per person.
The trouble is that traditional casino owners such as Star and Crown are ceding power and influence to a new breed of online competitors such as Sportsbet and Bet365. These 24-hour digital platforms do not have the fixed costs of a gaming resort.
Star’s financial challenges were laid bare last week in a cash and liquidity update. Star said it burned through almost half its available cash last quarter, leaving it with just A$79 million at the end of 2024.
Half of Star’s A$200 million debt lifeline, which was negotiated last year with an interest rate of 13.5 per cent, has already been drawn down. Star said some of the conditions that need to be met to access the other A$100 million “remain challenging”. One of those requirements is that Star raises at least another A$150 million of capital.
One lender to Star said that he is reasonably confident the loan would be repaid through asset sales, even if the company goes into administration. The source asked not to be identified as speaking about private matters. Star had total assets, including property, of A$1.9 billion at the end of June 2024, enough to cover its outstanding debt several times over.
No debt steering committee has so far formed, the source said, which would usually have happened if the situation was viewed by creditors to be very distressed.
‘Serious doubt’
To some analysts, however, it all looks too much.
Star’s status “as a going concern is under serious doubt”, Morgans analyst Partridge said in a Jan 14 note. Partridge almost halved his stock price forecast for Star to 12 cents and reiterated his sell rating.
Morningstar analyst Angus Hewitt put Star’s chances of avoiding collapse at 50 per cent. “Star could struggle to raise capital in current conditions,” he said.
Already there are signs that investors are positioning themselves for a shakeout. This week, a little-known Macau-based investor, Xingchun Wang, emerged with a 6.5 per cent stake in Star to become the company’s second-largest shareholder.
Even if Star somehow manages to raise the A$150 million and access the second tranche of debt, it will not be out of trouble. Earnings are under pressure from a cost-of-living crisis and analysts expect Star to lose money for a fourth straight year. Half-year results are due Feb 28.
At the same time, daily gambling cash limits at the flagship Sydney casino are due to drop to A$1,000 by August as authorities attempt to limit personal losses and eliminate money laundering opportunities.
There’s also a looming penalty from Australia’s financial crimes regulator for alleged breaches of anti-money laundering laws.
Morningstar and Morgans estimate the fine could be in the region of A$330 million, a sum that’s not far short of Star’s total market capitalisation. BLOOMBERG
