Australian casino operator Star Entertainment Group saw its shares plummet as much as 26 percent during trade on Thursday to hit a record low of A$0.13 during the day’s trade. The fall comes following Star’s announcement that it was running low on cash and its concerning liquidity position for the December quarter.
The stock slump slashed the company’s market value to just A$430 million. The company’s available cash dwindled to A$79 million as of 31 December.
Star burnt A$107 million in available cash in the December quarter. This includes the drawdown of A$100 million from a new debt facility. Star said in a that the reduction in available cash highlights the continued difficult trading conditions, essential capital expenditure, fees for its new debt facility and the first A$5 million instalment of an A$15 million fine imposed by the New South Wales casino regulator.
The embattled casino operator has been trying to access the last debt tranche of $100 million debt facility. However, it is subject to numerous conditions, of which “A number of these conditions remain challenging to meet given the Group’s current circumstance,” Star said. The company has already borrowed $434 million at a 13.5 percent interest rate.
That $100 million debt facility is only available to Star until April 9, but the recent update suggests Star would likely run out of cash before then. Analysts at Jefferies said in a note that “the most important risk for Star in the short term” is accessing the second tranche of the new debt facility. “Without access to funding, we see a significant liquidity issue.”
Star’s troubles
Star Entertainment has been embroiled in crisis since a regulatory probe into its Sydney casino found severe anti-money laundering and counter-terrorism lapses. A second inquiry found the company still falling short of the necessary standards for responsible management and identified additional licence breaches, including falsifying records.
Star’s Sydney casino operations have remained under scrutiny by the New South Wales Independent Casino Commission (NICC), which also imposed a AU$15 million fine because of ongoing compliance issues. A spokesperson for the company confirmed that Star is closely cooperating with regulators to tackle governance issues and adhere to mandatory regulations.
Regulatory changes, including mandatory carded play and cash transaction limits, are also affecting Star’s revenue as the company adapts to meet NICC compliance requirements.
To mitigate these challenges, Star has taken steps to bolster its liquidity including securing a AU$200 million debt facility. The company described it as essential for maintaining operations and meeting immediate financial needs.
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