The Star Entertainment Group (ASX: SGR) and its Hong Kong-based joint venture (JV) partners have failed to resuscitate a head of agreement (HoA) that would have reshuffled ownership of development assets between Brisbane and the Gold Coast, including the Queen's Wharf project and two hotels adjacent to its Broadbeach casino resort.
Soon after The Star shareholders approved $300 million investment by US gaming giant Bally's Corporation and pubs baron Bruce Mathieson's Investment Holdings, in late June partners Chow Tai Fook Enterprises and Far East Consortium International signalled plans to walk away from the HoA.
The agreement contemplated a sale of The Star's 50 per cent stake in the Destination Brisbane Consortium (DBC) behind Queen's Wharf, in exchange for full ownership of the Dorsett and Andaz tower hotels next to Star Gold Coast.
Bally's Corporation chairman Soo Kim had indicated intentions to retain a position in DBC, but in July The Star indicated negotiations were ongoing so long as it paid up $36.5 million to the JV partners.
Now the scenario has flipped again with the JV partners declining a request from The Star to extend the HoA termination date from 31 July to 6 August.
"As of this morning, the parties have been unable to reach agreement on a number of outstanding commercial issues which in turn prevent the finalisation of long form documents," The Star stated in a release to the ASX after calling a trading halt this morning.
As a result, the HoA has been terminated with effect from today's date.
The collapse in negotiations means The Star will retain its 50 per cent equity interest in DBC and a third of its equity interest in the Destination Gold Coast Consortium (DGCC), as well as the Treasury Brisbane hotel and car park and its 50 per cent in the Charlotte Street (Festival) Car Park.
However, for this state of holdings to remain the case, The Star will need to pay its partners $10 million for proceeds received by 6 August, and approximately $31 million worth of equity contributions related to DBC by 5 September.
If these amounts are not paid, The Star will have to transfer its one-third interest in the Dorsett tower on the Gold Coast to the joint venture partners.
The aforementioned sums are offset marginally by the joint venture partners' requirement to pay The Star for its share of equity contributions made to DGCC since March, estimated to be worth around $1 million.
"The parent company guarantee in relation to The Star’s 50% share of the DBC debt facility (for which the total current drawn balance by DBC is approximately $1.4 billion) will remain on foot," The Star stated.
"The Star will continue to be responsible for its share of future equity contributions to DBC, estimated to be approximately $200 million. Additional equity may also be required as part of the refinancing of the DBC debt facility which is due to expire in December 2025.
"The original casino management agreement for The Star Brisbane (CMA) remains on foot and The Star continues to be the operator of The Star Brisbane under the CMA. Under the CMA, The Star also receives a casino management fee as calculated under that agreement.
"The $35 million prepayment to The Star of its share of the net sale proceeds for apartments in the Tower 2 development on the Gold Coast survives termination of the HoA."
The Star reports its intention to keep engaging with the joint venture partners, and is now considering what alternative options may be available relating to its stake in DBC, along with its Brisbane carpark interests.
At noon SGR shares were down 4.55 per cent at 10.5 cents per share (cps).
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