Star Entertainment is facing liquidity crunch

Posted: January 9, 2025, 10:08 am.

Last updated: January 9, 2025, 10:08 am.

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

Morningstar analyst Angus Hewitt said in a report on Thursday that Star had AUD 79 million in cash by the end of 2024, down from AUD 107 million at the end of the third quarter. At that burn rate, gaming “will be lucky to reach its interim results on February 28, 2025, without any lifelines.” The gaming company is also facing difficulty in accessing the credit facility that could keep it afloat.

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

The Star is now at risk of losing control of its flagship venue, The Star Sydney, amid a protracted anti-money laundering investigation. The site is being run by the Australian government from 2022. The Star's other two sites, The Star Brisbane and The Star Gold Coast, are also government-run. That question, coupled with weak macroeconomic conditions, has pushed the casino operator into a situation that some analysts consider untenable.

start fun on the edge

The news of Star's lack of liquidity comes nearly 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 possible lifelines, including selling personal property or finding a potential lover. We still expect operating conditions for casinos to improve in the medium term,” says Hewitt. “However, Star requires a more immediate solution, and we believe it is unlikely that he can extricate himself from this dilemma.”

Finding a potential suitor is becoming increasingly difficult due to the sluggish Australian economy and poor playing cards in star properties.

What's next for the star?

With lenders concerned about its dwindling cash reserves, Star could be prevented from issuing debt and forced to consider selling equity, putting further pressure on its already low share price. Will put.

“We expect Star to raise AUD 150 million in equity for the second tranche. We are now estimating an increase to AUD 0.10 per share from AUD 0.20 previously. That's about a 30% discount to where Star's shares trade,'' Hewitt believes.

The analyst has an “overweight” rating on the stock with a price objective of AUD 0.20, noting that there is a 50% star downgrade into administration.