(Bloomberg) -- Star Entertainment Group Ltd. won a new A$200 million ($136 million) debt facility and is looking for yet more capital in a desperate bid to shore up its balance sheet and keep hold of its Sydney casino.
After weeks of negotiations, Star’s corporate lenders are providing extra funds in two equal tranches. The company has agreed to pay annual interest of 13.5%, a distressed-asset rate that reflects Star’s urgent need for cash and its fragile finances. The first portion should be available from the end of October.
A castigating inquiry last month found Star remained unfit to operate its flagship Sydney casino, and the gaming regulator is weighing its response. The report found that Star had breached the terms of its license multiple times, had dysfunctional leadership and a questionable culture.
The potential loss of the license — an existential threat in itself — is just one of many crises facing incoming Chief Executive Officer Steve McCann, whose appointment still needs regulatory approval. Even if the company is granted a reprieve and can continue running the casino, Star is hemorrhaging cash and revenue is falling. Near-term funding requirements loom that are large enough to wipe out the latest debt lifeline at a stroke.
The magnitude of these broader problems was laid bare as Star released its delayed annual results on Thursday. The company posted a A$1.69 billion loss for the 12 months ended June — a third straight year in the red — as it wrote down the value of its three casinos. Losses mounted in July and August as trading conditions deteriorated across the board, Star said.
“This business has clearly been on its knees,” McCann said on a conference call late Thursday.
The release of the delayed results should allow Star shares to resume trading Friday. The stock has been suspended since Aug. 30, when Star missed the initial deadline to lodge its accounts. The stock had slumped more than 50% in the preceding year, slashing the company’s market value to A$1.3 billion.
With just A$130 million in ready cash as of Aug. 31, Star said it’s considering raising more money to see it through. Potential sources of fresh capital include subordinated debt, it said. The company faces “significant near-term liquidity requirements,” it said.
The imminent funding drains include day-to-day operations, given the current state of trading, Star said. It also expects to spend A$100 million this financial year transforming itself into an entity suitable to run the Sydney casino and at least A$357 million over the next two years and beyond completing its new Brisbane gaming resort joint venture.
‘Significant Challenges’
There’s also a likely penalty from Australia’s financial crimes regulator for alleged breaches of anti-money laundering laws.
“There are a number of significant challenges currently facing the business from an earnings, liquidity and balance sheet perspective,” McCann said.
“We have identified a range of initiatives to improve business performance and cashflow, as well as providing the organization with additional liquidity. However, time and flexibility is required,” he said.
The company has identified about A$300 million of assets that could be sold to raise funds, including hotels and at least one car park, McCann said on the conference call.
The latest debt finance package is only a short-term, expensive sticking plaster. The terms of Star’s existing A$450 million facility were reset — the limit was reduced to A$334 million, which is already fully drawn — and the 13.5% interest rate was applied to the A$300 million debt portion. The remainder comprises bank guarantees.
The financing is enough to support Star through to late-2025, McCann said.
The onerous repayments are comparable to the rate on a junk bond. Distressed builders in China, where some enormous construction companies have collapsed, are paying similar rates on new loans.
Star didn’t name any of the lenders providing the debt.
Still, securing the funds is an early milestone for McCann. The regulator in New South Wales state needs to be convinced Star is financially viable to run the Sydney casino and has a cultural turnaround plan in place.
Star has submitted its rehabilitation plan to the regulator ahead of Friday’s deadline. The Sydney casino has been run by a government-appointed manager since a damning report in 2022 found it had lax anti-money laundering controls, allowed patrons to flout China’s capital controls and encouraged problem gamblers.
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