The Star announces $800m equity raise after reporting $1.3b loss

The Star announces $800m equity raise after reporting $1.3b loss

The Star Gold Coast (via Multiplex)

After today revealing a massive $1.3 billion half-year loss, embattled casino and resorts company The Star Entertainment Group (ASX: SGR) has announced an $800 million equity raise in order to meet capital requirements and shore up funds ahead of anticipated regulatory uncertainties.

As anticipated, The Star’s losses have blown out following protracted regulatory and legal action levelled against the casino company which faced two high-profile reviews of its casino licence during 2022 in NSW and Queensland.

Were it not for a nearly $1 billion impairment on the group’s Sydney casino operation, The Star would have achieved a net profit after tax of $44 million.

Gross revenue increased by 74 per cent in the half to $1 billion, while earnings rose by 551 per cent to $200 million as of 31 December 2022.

To soften the blow, The Star has tapped two strategic partners, Chow Tai Fook Enterprises and Far East Consortium, which are contributing $80 million towards the equity raise.

Worth $800 million in total, the equity raise comprises a $685 million non-renounceable entitlement offer and a $115 million institutional placement. The balance not paid by the two strategic partners is underwritten.

The raise will be conducted at a fixed price of $1.20 per share, representing a 21.1 per cent discount to the company’s last closing price on 21 February 2023.

“These capital structure initiatives provide increased financial flexibility to meet capital requirements provisioned for and navigate a range of operating and regulatory uncertainties,” The Star says, adding that the funds will be used to repay debt and increase liquidity.

In addition to the equity raise, The Star has secured covenant relief from both bank lenders and USPP (US private placement) noteholders through to June 2025.

While trading performance was impacted at The Star’s Sydney property - primarily because of operating restrictions and strengthened regulatory controls implemented post-Bell Review - the same cannot be said of its Queensland-based casinos.

The Star says its Queensland properties performed strongly during the half, achieving record domestic revenues. Gold Coast domestic revenue was up 30 per cent on pre-COVID levels - its highest property revenue performance on record - while Brisbane revenue rose 9 per cent on pre-COVID levels.

This compares to The Star Sydney’s performance, where revenue was down 14 per cent on pre-COVID. The trend here has continued into the second half, with the casino operator predicting revenue from its Sydney property will be down 17 per cent versus pre-COVID at the end of 2H23.

Overall, FY23 revenue is expected to be between $330 million to $360 million.

“The end-of-year position will be dependent upon a number of factors which are uncertain at this time, including regulatory settings relating to complimentary services in The Star Sydney’s private gaming areas, the level of inbound international tourism, and general consumer discretionary spending behaviour,” The Star says.

“The Star intends to implement a number of focused operational initiatives designed to improve its trading performance, which are estimated to contribute approximately $40 million to the group’s operating performance (on an annualised basis).”

The Star has made provisions for contingent liabilities totalling $362.7 million in its latest accounts, largely relating to the fallout of the independent inquiries held in NSW and Queensland last year to determine the suitability of the group to hold its casino licence in each state.

On top of the $100 million fines imposed individually by the NSW Independent Casino Commission and the Queensland Attorney-General, The Star has made provision for $150 million relating to the civil action brought by the federal anti-money laundering authority AUSTRAC which has alleged “serious and systemic” failures that exposed the group to criminal exploitation.

A further $12.7 million has been allocated for underpaid NSW casino duty. The Star has made no provisions for a series of class actions brought on behalf of shareholders that stemmed from the Bell inquiry.

The group also has two outstanding tax issues, namely a $6.4 million withholding tax penalty which is in dispute, and a GST amendment claim from the Australian Taxation Office. The Star has paid a $40.9 million deposit to the ATO on a no-admissions basis for the disputed GST bill, with the sum registered as a current asset on the balance sheet pending an ATO review of the claim, which relates to a period between 2013 and 2017.

Despite the ballooning losses, The Star's CEO Robbie Cooke says he is pleased with the performance of the company’s Queensland properties.

“We have been pleased with the ongoing strength of trading across our Queensland-based properties while trading at The Star Sydney has been impacted by operational changes associated with the outcome of the Bell Review and increased competition,” Cooke says.

“Our focus has been and remains on working constructively with our regulators and the NSW manager and Queensland special manager to urgently remediate our businesses as we seek to return to suitability.

“Our key priority is to regain the trust and confidence of our community and demonstrate to our regulators that we are suitable to hold our casino licences. To that end, we continue to support the NSW Premier’s industry-wide initiatives around cashless gaming and improved harm minimisation.”

Today’s announcements come after The Star was hit withtwo more shareholder class actions over allegedly misleading representations about anti-money laundering and counter-terrorism financing (AML/CTF) obligations.

Law firms Phi Finney McDonald and Shine Lawyers (ASX: SHJ) are behind the two latest class actions, adding to two "substantially similar" legal actions launched against The Star by Slater & Gordon in March 2022 and by Maurice Blackburn in November.

As with the Slater & Gordon and the Maurice Blackburn class actions, The Star says it will defend both law suits, which were filed in the Supreme Court of Victoria. 

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