Star Entertainment Struggling as Shares Drop 28%
Star Entertainment Group, one of Australia’s leading casino operators, has issued a warning about its financial situation as it faces challenges resulting from regulatory scrutiny and a drop in gambling activity.
Star Entertainment sign. Star Entertainment faces financial troubles following investigations.
LISTEN TO THIS ARTICLE:Dwindling Cash and Regulatory Pressure
The company is struggling with the fallout of an investigation into criminal activities within its operations, alongside a fall in domestic gambling demand caused by Australia’s rising cost of living. In its latest fourth-quarter trading update, Star revealed it had just A$79 million (US$49 million) in available funds after exhausting A$107 million in cash. Australia’s casino industry, which was once highly profitable, has been shaken by regulatory crackdowns and financial penalties for failures in areas such as money laundering controls and oversight of high-risk patrons, many of whom were brought in through junket operators from Asia.
A 2022 investigation uncovered that Star had partnered with Macau-based junket operator Suncity, whose former chairman, Alvin Chau, was convicted in 2023 of crimes including illegal gambling and fraud. As part of the partnership, Suncity ran an unauthorized VIP room at Star’s properties, complete with an illegal cash-exchange operation, where staff were filmed unloading large amounts of money from sports bags.
Revenues Fall Following End of Junkets
These controversies have led to a significant loss of revenue for Australian casinos, which can no longer rely on the lucrative income from junkets. Domestic gaming has also dropped, with fewer customers visiting Star casinos. The company is facing increased competition from pubs and clubs that offer gaming machines and sports betting while households are struggling with economic pressures.
The situation mirrors troubles faced by rival Crown Resorts, which was purchased by Blackstone in 2022 after its own scandals regarding money laundering compliance. Crown has since reduced its workforce and seen a steep drop in profits over the past two years.
Star’s financial struggles have caused concerns about its future. Shares plummeted by 28% on Thursday, 9 January, leaving the company valued at A$415 million, down from over A$3 billion prior to the 2022 inquiry.
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Loan Extensions and New Partnerships
In addition to looming penalties and rising refinancing expenses, Star is looking for ways to improve its liquidity. Despite securing a loan extension with creditors less than six months ago, the group’s current funding options are limited. While an additional A$100 million in loans is available, accessing those funds depends on raising A$150 million in working capital, which is a challenge under current conditions.
The company has been working with UBS to find a financial partner but admitted that meeting the required conditions for the loan remains difficult.
In a statement, Star said that it is working to find a way to meet the conditions in order to obtain the additional A%100 million, but that “a number of these conditions remain challenging to meet given the Group’s current circumstances”.
Kai Erman, an analyst at Jefferies, is pessimistic about the company’s future. He said that the “chips are down” for Star and that it is facing “extremely difficult” trading conditions and hurdles in securing additional capital.
He added that they see nothing that will act as a “catalyst for an improvement in earnings in the short term”, especially as stricter gambling regulations are due to be introduced in both states in which Star operates.
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