Star's lenders appoint McGrath Nicol, Blackstone touted as potential bidder

A consortium of banking lenders owed $430 million by Star Entertainment have appointed receivers McGrath Nicol to pour over its asset values in a pre-emptive move to get their money back by potentially selling its hotel assets if the embattled casino and leisure group plunges into administration.

The group of about 10 debt holders is being led by specialist distressed debt teams at Macquarie and Deutsche Bank, with listed investment group Washington H. Soul Pattinson also said to one of the largest single lenders in the syndicate.

Star owes an additional $1.6 billion in debt accrued to finance the construction of its Queen’s Wharf Star Brisbane Casino, which was plagued by cost blowouts.  

Around half of the Queen’s Wharf Star Brisbane Casino is owned by Chinese investors Chow Tai Fook and Far East Consortium. The other half is owned by Star, with the project finance debt thought to be owed largely to Australian banks.

Investment banking sources suggested the newly-opened Queen’s Wharf Star Brisbane Casino could be worth somewhere north of $2 billion if it were put up for sale to leave equity in the casino somewhere north of $400 million as measured by its potential sale value, minus the $1.6 billion debt owed. 

Potential bidders

US private equity giant Blackstone is being touted as a potential bidder for Star’s Sydney casino given it already has gaming licenses and expertise via its acquisition of Crown Melbourne and Sydney, while Star’s Sydney casino would also offer Blackstone valuable pokie operations. 

Other bidders are likely to be found among deep-pocketed Asian investment groups connected to its existing Chinese investors. 

Star’s syndicate of banking lenders recently declined to tip in another $100 million into the business, after it failed to raise an additional $150 million in series C funding. The deal that couldn't find bidders was being led by UBS, where Kelvin Barry is its co-head of global banking for Australia and New Zealand.

In the event of Star's administration, the banking lenders are at the front of the queue to be repaid via asset sales likely to include the hotels, as $100 million is top-ranked super senior debt and the other $330 million in senior debt.

Star’s 650 hotel rooms in Sydney and 1164 on the Gold Coast are estimated by sources to be worth more than the $430 million owed to lenders. Its Gold Coast property is the only one on a freehold and said to be likely to attract bidders on a standalone basis.

The casino group's stock has bombed 78% over the past year and fetched just 12 cents on Tuesday morning. 

Its shareholders are at the back of the queue to get paid in the event of bankruptcy and only entitled to any cash leftover after the group settles an unknown fine from money laundering regulator AUSTRAC and multiple class actions.

Star is seeking tax breaks on its gaming operations from the New South Wales and Queensland state governments in a bid to avert bankruptcy. 

Sources in the market complained the NSW government’s refusal to offer any concessions suggests it’s now walking away from a mess it helped create via tough enforcement penalties, with more than 9000 jobs on the line across the group.

Last week, Star warned it’s running out of cash to fund its operations. As at December 31 it had $79 million cash on hand, after burning through $107 million to fund its December quarter operations.  

A spokesperson for Washington H. Soul Pattinson declined to comment.