Star Entertainment Staring Down Liquidity Crisis

Posted on: January 9, 2025, 10:08h. 

Last updated on: January 10, 2025, 09:12h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Star Entertainment Group tumbled to another all-time low on Thursday as the Australian casino operator faces a liquidity crunch and crisis of confidence among its lenders.

The Star Gold Coast casino at night
The Star Gold Coast casino at night. The operator is facing a significant cash crisis. (Image: Star Entertainment Group)

In a report out Thursday, Morningstar analyst Angus Hewitt noted that Star has $AU79 million in cash on hand as of the end of 2024, down from $AU107 million at the end of the third quarter. At that burn rate, the gaming “would be lucky to make it to its interim results on Feb. 28, 2025, without a lifeline.” The gaming company is also encountering difficulty utilizing a credit facility that could keep it afloat.

Star is struggling to fulfill conditions to unlock the second AUD 100 million tranche of its debt facility. This includes additional subordinated capital of at least AUD 150 million, likely to be equity,” said Hewitt.

Amid a now lengthy anti-money laundering probe, Star is at risk of losing control of its flagship venue, The Star Sydney. That venue has been run by the Australian government since 2022. Star’s other two venues, The Star Brisbane and the Star Gold Coast, are also run by the government. That query, coupled with weak macroeconomic conditions, has pushed the casino operator into a position some analysts view as untenable.

Start Entertainment on the Brink

News of Star’s crimped liquidity emerged about two weeks after it was revealed that US banking giant JPMorgan Chase & Co. (NYSE: JPM) liquidated its 5.47% interest in the gaming company’s voting stock.

“Star has other potential lifelines, including selling individual assets or finding a potential suitor. We still expect a medium-term recovery in operating conditions for casinos,” adds Hewitt. “However, Star needs a more immediate solution, and we believe it is unlikely it can trade itself out of this predicament.”

Some analysts believe that with the company close to being put into administration, meaning it could essentially become a ward of the government, finding a buyer could be difficult and that saviors are unlikely to emerge over the near term.

Compounding the difficulty in finding a potential suitor are the factors of a lethargic Australian economy and weak carded play at Star properties.

What’s Next for Star

With lenders worried about its dwindling cash reserves, Star may be cut off from issuing debt and could be forced to consider selling equity, which would further weigh on the already depressed share price.

We continue to expect Star to raise AUD 150 million in equity to draw on the second tranche. We now assume a dilutive raise of AUD 0.10 per share from AUD 0.20 previously. This is a discount of about 30% to where Star’s shares trade,” observes Hewitt.

The analyst has an “extreme uncertainty” rating on the stock with a price objective of $AU 0.20, noting there’s a 50% Star falls into administration.