Star Entertainment fights for its life as cash runs short
It is particularly apt that as a casino company, Star Entertainment (ASX: SGR) now faces the equivalent of a red or black future on roulette.
If it hits black, then the company will be saved and literally 9000 jobs with it.
If it hits red, then the once storied company worth billions of dollars faces a grim future of administration in which shareholders and potentially also some lenders face a wipeout of all or at least some of their investment.
The latest trading update outlines what a dire situation Star is in, having burned through $107 million of its available cash in the December quarter alone.
Only $79 million left in the bank
There remains just $79 million of cash in the bank which shows that this particular roulette game will be over at some time in the next three months.
Trading out of the crevasse in which Star has found itself now looks highly unlikely, with the main hope being that chief executive Steve McCann can do a deal with a new owner who has deep enough pockets and a long-term vision that will be able to weather the combination of consumer weakness and regulatory handcuffs that previous Star management teams have created.
While McCann remains confident, this is not an ideal environment in which to save a company – although some would argue McCann’s unique contract in which he is guaranteed up to $15 million over two years plus extra bonuses is the closest thing to a sure bet amid this value destructive disaster.
Shareholder capital evaporating
After all, shareholders tipped in an incredible $1.5 billion in 2023 which has effectively evaporated and the company needs to urgently raise $150 million in further risk capital so that lenders will release another $100 million lifeline.
That will really take some doing, although Star has been on the hunt for a white knight for some time now so the phone numbers should be readily available.
Apart from a tough economy for consumers, Star must also convince gaming regulators and the Queensland and NSW Government to ease the regulatory burden on the company a little bit so that it stops losing so much business to clubs and pubs.
So far both governments have declined to take part in any rescue.
Governments face pain as well
Employing so many staff should help this discussion, although the fact that previous management teams snubbed their noses at regulators makes it very difficult.
The fact that tourism business and gambling taxes roll in from the Star properties might also focus the minds of those in government.
Company lenders for both the Brisbane Queens Wharf project and the company as a whole are also probably running out of patience and security to tap.
They might be convinced to provide more money but they will need plenty of convincing, particularly with $1.6 billion of project debt for Queens Wharf already coming up for refinancing this year.
Time for a white knight to save the day
All of which emphasises the need for some sort of external white knight scenario – perhaps in the form of a buyer for one part of the empire or for the entire business.
Such a deal is possible with a rescuer effectively getting a compelling deal but only if they can bring a long-term perspective that looks through current troubles.
The problem for Star’s board and management is that at least some of its potential rescuers might be convinced that voluntary administration might be the best and cleanest way to force through a radical restructuring of the business.
That’s the really troubling situation confronting potential new shareholders at the moment and the reason why Star’s shares remain so weak at the moment.
It is all an intriguing time of cliff top negotiation that is even more interesting for shareholders who are in one of those classic high risk, high reward scenarios.