The Star Entertainment Group announced in an ASX release that it has completed the previously announced disposal of its interest in Destination Brisbane Consortium (DBC). The deal, which sees The Star sell its stake in Queen’s Wharf Brisbane, has some downsides, but will ultimately reduce The Star’s debt amid a turbulent period.
The Star Exits the DBC
In its announcement, The Star said that it has completed the sale of its interest in the DBC, which includes its 50% stake in Queen’s Wharf Brisbane, to its joint venture partners, Chow Tai Fook Enterprises (CTFE) and Far East Consortium International (FEC). The sale completed The Star’s exit from the DBC, albeit at somewhat mixed terms.
As a result, CTFE and FEC will serve as joint co-owners of the Queen’s Wharf Brisbane property, with each owning a 50% stake.
In the meantime, The Star will no longer receive the operator fee under the DBC Casino Management Agreement. Instead, it will receive a fixed monthly fee of AUD 18 million a year, as well as a performance-based incentive fee based on EBITDA figures.
The Deal Will Reduce The Star’s Debt Strain
As mentioned, the terms of the sale are not perfect for The Star. However, they mean that the company will significantly reduce its debt, since it will eliminate the debt burden associated with the Brisbane property. At the same time, the AUD 18 million fee will be paid on a monthly basis, providing the company with a stable source of income during a turbulent period.
Still, earlier negotiations suggested that in different circumstances, The Star could have received an annual fee of AUD 60 million instead of the current AUD 18 million. The overall negotiations with The Star’s joint venture partners proved to be difficult at times, making the road to the company’s DBC exit a bumpy one.
The Star’s business has been in peril for several years, with most of the trouble stemming from the company’s lax AML controls, which resulted in significant regulatory scrutiny across multiple markets. The company has since been deemed unsuitable to hold a license in New South Wales and Queensland due to the severity of its shortcomings.
To make matters worse, The Star’s initial remediation measures proved highly insufficient, resulting in further trouble and loss of investor trust. At its lowest point, The Star narrowly avoided insolvency. Hope finally appeared on the horizon in the form of Bally’s Corporation, which secured a majority stake in the Australian company.
Bally’s admitted that the prior management of the company has been appalling, but emphasized that it hopes to turn things around.
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