Star Entertainment Group, one of Australia’s leading gambling and entertainment companies based in Brisbane, has publicly announced that it is collecting AUD$800 million, which is approximately 545 million US dollars, to pay back its debt and will suspend dividend payments.
The debt arose as the company posted a record statutory net loss for the first half of the year ended December 31 of AUD$1.26 billion, compared with a loss of AUD$74.2 million a year earlier.
Capital raising as a reason for statutory loss:
This loss was due to difficult business conditions in Sydney.
In this regard, company officials said: ” The half-year financial results included a $1.3 billion in what we would describe as one-off costs, like the expected changes to taxes, $350 million in fines and the expense of ongoing reviews and new systems to fix problems.
“The poor performance is reflective of increasingly restrictive operational requirements and amendments to the state’s Casino Control Act.”
However, that “one-off” cost could tend to be higher, because the official sale of two properties is counted against it.
What’s more, limitations by Australian regulators on the company’s Sydney subsidiaries since mid-September and tough competition from larger rival Crown Resorts, which opened there in August, have squeezed revenues for Star, currently Australia’s second-largest casino operator, by 14% compared to pre-pandemic levels.
Commenting on this, company officials said: “The capital raising, comprising a A$685 million 3-for-5 rights offer and a A$115 million institutional placement, will help Star repay debt and increase liquidity.”
The firm, however, reported AUD$43.6 million in normalized net profit after tax, compared with losses of AUD$73.7 million a year ago.
Sale of shares as part of capital raising:
Star will also sell shares to collect money for debt, which is one of the main reasons for the loss of income. They are currently priced at AUD$1.20 per share, 21% beneath Star’s most recent closing price of AUD$1.52.
Commenting on the share sale, company officials said: “Major shareholders Chow Tai Fook Enterprises and Far East Consortium (0035. HK) have taken up their rights entitlements and committed $80 million to the capital raising.”
The company also flagged the courtesy of its Sydney casino in the first half, with AUD$851 million to zero.
Regarding the suspension of dividends, company officials said: “We will suspend the payment of dividends while we try to reduce the company’s debt and ensure that the casino licences remain in full operation.”
The company’s shares were stopped on Thursday while the capital raising is underway.
Many lawsuits by regulators:
Star Entertainment was previously warned of up to AUD$1.6 billion in damages in the first half due New South Wales government’s proposal to increase taxes on casino poker machine operators. Its license there was suspended and the company had to pay a fine of $100M. However, despite this, it managed to keep its gambling venue open until it decided on a new manager to supervise its gambling operations.
“Tax resolution with New South Wales government remains the key catalyst for investors,” according to Jefferies analysts.
Regarding the NSW-Star Entertainment case, Star officials said: “We are urgently working on regaining suitability to hold casino licences in NSW and Queensland, after reviews into money laundering, fraud and criminal activity.”
As for the fines in Queensland, over the past year the company had to pay a $100 million fine and was granted an additional year to show why its casino license should remain with the company.
However, according to the Financial Statement “Star Sydney has lost almost $1 billion as a result of regulatory changes and fines.
“The Sydney property is in a state of significant uncertainty. Recent regulatory changes have increased compliance costs and the Group has paused international and domestic rebate business.
“Further, proposed increases to casino duty rates could materially alter the profitability of the business. In combination, these factors have reduced the valuation of the Sydney cash generating unit, requiring an impairment of $988.4 million to be recognized at 31 December 2022.”
But new fines are coming as the Australian Transaction Reports and Analysis Center (AUSTRAC) brought charges against Star for alleged violations of anti-money laundering laws, meaning the company’s loss could be in the billions in the future.
In this regard, Robbie Cooke, a managing director of Star Entertainment Group, said: “The group was transforming its culture and business.”
Increase in domestic revenue for some Star affiliates:
Still, the company’s subsidiaries Star Gold Coast and Treasury Brisbane grew domestic revenue by 30% and 9% respectively.