The Star Entertainment Group’s CEO Steve McCann has pulled an 11th hour miracle, managing to keep the company from almost certain administration. Despite appearing to have little to negotiate with, the company leveraged its primary asset, Queen’s Wharf Brisbane – knowing its value both to its joint venture partners and to the Queensland government.
Gaming expert Ben Lee has likened the move to a game of Monopoly, with The Star landing on a place on the board and needing to pay the relevant rent, without having the capital to do so – exchanging its assets for cash and a way to enable the debt to be paid.
“They’ve traded what would be their crown jewel in return for controlling share of an older asset. And as part of the deal, they’re getting desperately needed cash that will enable them to keep going for another few weeks”.
The Star is selling its 50 percent equity interest in the Destination Brisbane Consortium (DBC) and transferring its other Brisbane properties to its joint venture partners Chow Tai Fook (CTF) and Far East Consortium (FEC). This includes a one-year period in which it will continue as the casino operator of the property, during which CTF and FEC will attempt to have the casino license transferred.
Ben Lee notes that this license transfer process could take anywhere from three months or one year, potentially longer given that CTF and FEC are Hong Kong-listed companies with Chinese backing.
But, this transition is almost guaranteed.
“The Queensland government is desperate for this project to happen, and the last thing they are going to do is take away the license and say: “you can’t operate the casino”, in which case the consortium just turns away and shutters the property immediately”.
Lee furthers that “without the casino that project is not viable, under current economic circumstances, under the current lack of Chinese VIPs coming to Australia, the viability of that project is already questionable”.
Probity has been an issue before, with the joint venture partners previously being investigated by the state, the results of which had little impact.
“Nothing seemed to have happened as a result of that, and it’s many people’s belief that the Queensland government have decided to place economic outcome above due diligence,” notes the gaming expert.
And chances are slim that another party, such as Crown investor Blackstone, could swoop in to try and negotiate a way into a percentage of Queen’s Wharf, as both the JV partners and The Star made the most of their respective situations in this negotiation.
“The Queen’s Wharf property, with CTF and FEC there, is not in any distress. They don’t need to sell off their asset at a bargain basement price”. That was already what The Star did in selling its stake in Queen’s Wharf to CTF and FEC.
But this financial position got much stronger after the new negotiation, as The Star was able to release itself from its debt obligations linked to the DBC, totaling around 50 percent of AU$1.4 billion ($880.7 million), plus an expected AU$212 million ($133.36 million) in expected further equity contributions.
Plus, The Star will receive a fixed AU$5 million ($3.15 million) monthly fee under the casino management agreement until March 31st, 2026, which could increase to AU$6 million ($3.77 million) after June 30th, 2026 if the transitional period is extended.
It also may receive ‘up to AU$225 million ($141.5 million)’ in future consideration from an earn-out mechanism for The Star Brisbane.
Consolidating Gold Coast position
As part of the deal to exit Brisbane, The Star is able to consolidate its presence on the Gold Coast, upgrading to 100 percent interest in The Star Gold Coast’s gaming and non-gaming operations.
This includes full ownership of the 313-room Dorsett and 202-room Andaz hotels, retention of rights for future development on the 6.7-hectare site, with ‘existing plans to develop up to three additional towers. However, the JV partners will ‘retain their existing development rights for the next tower only, subject to The Star’s option to buy-out these rights for the next tower for AU$17 million ($10.7 million).
“The Queen’s Wharf project is just another debt. They’ve done themselves a service by walking away from that to now owning 100 percent of The Star Gold Coast. They’ve gone from potentially negative cash flow to potentially positive cash flow, depending how much the Gold Coast property returns. Most importantly, they’ve just lightened their load in Queensland dramatically with this swap,” indicates Lee.
The Star financials
While The Star has only received AU$35 million ($22 million) up front in the deal, “it gives them a little bit more breathing room,” meaning “they don’t have to accept the first fire sale, discounted offer, that they can get”.
The group over the weekend received an unsolicited, non-binding proposal for additional funding from US gaming operator Bally’s, which offered ‘at least AU$250 million ($157 million)’ in capital for a majority share in the company.
The Star says that it will review the proposal, but that ‘there is no certainty that it will be progressed’.
This also comes after multiple proposals from groups including Oaktree Capital Management – for $414 Million debt refinancing, which The Star rejected.
Significantly, the group has now received a refinancing proposal with Salter Brothers Capital for ‘up to AU$940 million ($591 million)’. The group notes that if the deal is finalized, it ‘would provide the Star with sufficient liquidity to refinance all of the Group’s existing debt’. The Star has ‘entered into an exclusivity and process deed with Salter Brothers Capital relating to that refinancing proposal,’ the group indicated in a stock exchange announcement on Tuesday.
All together, the negotiations have pulled The Star back from the brink of administration, and not a minute too soon.
