The $300m Star Entertainment rescue package promised it a lifeline, but its not a done deal and the company’s fate hangs in the balance

Back in April, a long awaited Star Entertainment rescue package was unveiled and the company was able to stave off administration…for a while.

But the deal still is not done – which is to say not all the money has been received yet; and so the company’s fate is hanging in the balance.

Why Star Entertainment needed a rescue package

Star Entertainment’s (ASX:SGR) finances have been in a continually deteriorating state. It closed CY24 with a $79m cash balance, but was burning through $50m a month. And it cannot just keep borrowing more money forever. Its debtors had a gutful of management’s pleas and excuses (having heard it all before), the NSW and Queensland governments are unwilling to give it sufficient tax relief (even if only because of the PR problem it could cause). It was (and is) toxic with just about all buy side fundies, sell side analysts and both HNW and retail investors having raised so much money ($1.55bn in equity raisings during 2023) but torching investors (and itself) literally every time.

Star Entertainment’s problems are a mixture of bad luck and also poor management decisions. The pandemic has erased a significant proportion of its high-roller market. And the company has had varying legal problems which no doubt would be causing hefty legal bills.

2025 on life support

A warning sign that the company was on life support came in February 2025. The company opted to sell its event centre to Foundation Theatres for $60m and the leasehold of its Brisbane building to Griffith University for $67.5m, both amounts supposed to come in the very same week. It also agreed to sold 50% of its Brisbane precinct to its JV partners for just $50m cash and interest in its Gold Coast property.

SGR was unable to lodge its accounts for the first half of FY25 (the 6 months to December 31) because its auditors could not state it was going a concern…because had they signed off on such a statement, that’s a whole set of accounting careers destroyed because they could not professionally do such a thing with accounts in the shape they were.

As a result, Star shares were suspended for a number of weeks as the company tried to come up with more money. Various leaks to the media suggested that certain packages had nearly been secured, but would-be financiers pulled out (one being a $750m package from Salter Brothers).

The finer details of the Star Entertainment rescue package

But on Monday April 7, it looked like a lifeline has been secured. SGR entered into a binding term sheet with casino operator Bally’s Corporation for $300m, some of which would be convertible notes. $100m was expected to be paid within a couple of days, with the balance paid following shareholder approval and regulatory approvals.

Star planned to sell its stake in the Brisbane development so that is another source of financing too. It may also replace $100m of Bally’s money from pub baron Bruce Mathieson, who is a major shareholder in Star. The interest rate on the Bally’s package is 9% per annum, payable in cash or kind. The conversion price is 8c per share and the maturity is July 2, 2029. A vote is proposed to be held in late June 2025. SGR also told investors it is finalising its 1H25 accounts and intends to lodge them ‘as soon as possible’.

A day later, just late night (April 8), SGR received a commitment from the Mathieson family for $100m, thus reducing the Bally’s deal to $200m. It will leave the pair of investors with just over half of the company. Another good sign was that Bally’s chairman Soo Kim said he’d join Star and he was reported as saying Star’s casinos could star making money ‘within a reasonable amount of time’.

4 months on, and the signs are worrying

Despite it being a binding deal, Star has only obtained $133m of the money and the rest can only flow into the coffers once casino regulators approve of it. The regulators publicly commented that,’ Bally’s Corporation must provide clear and convincing evidence it is suitable to be associated with a casino license’. And this may not even happen prior to another anticipated AUSTRAC fine coming in September which could be $400m if AUSTRAC has its way. Star has protested, admitting any fine above $100m could not be paid.

Yesterday, Star released its latest quarterly figures and its revenues were down by a third – down to $270m from $393m; while its bottom line went from $23m in the black to $27m in the red. In both instances due to the lack of income from the now closed Treasury casino in Brisbane and lower hotel patronage in Sydney. It also advised it wouldn’t reach a deal for the Queen’s Wharf stake by the end of the week which threatened a $36.5m cost.

Anything positive?

That question is hard to affirm given Star’s shares are down 95% since the pandemic. But maybe there is one positive. That investors can still sell their shares…for now. We strongly recommend that investors do this while the chance exists because it may not be for long.

Specifically, they may only have the chance until the end of August when the annual accounts are due and we doubt auditors will sign off on it as a going concern given the uncertainty of the funding deal and the AUSTRAC fine. And unlike the last 2 reporting periods, there may be no coming back from this one if what we’ve heard from the regulators provides hints. But even if it wasn’t facing the threat of a fine risking sending the company bankrupt, the company’s trading results keep getting worse and worse.

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