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The Star Entertainment Group (ASX: SGR) continues to burn cash despite accessing a $100 million safety net provided by its lenders, with the casino group facing a challenging time to secure the second tranche of a new $200 million debt facility negotiated late last year.
The Star reveals that it had $79 million in cash at the end of December, which was down from $149 million at the end of September.
Adjusting for the impact of the drawdown, The Star has burned through $107 million in cash over the three months to the end of December.
The latest cash position includes the drawdown of the $100 million first tranche of its new debt facility on 3 December, implying that the company would have been perilously close to the red without it.
However, most of the $59.5 million received from the sale of the Treasury Casino building in Brisbane to Griffith University was placed in escrow as part of the conditions sought by the lenders. These funds, which were placed in a “disposal proceeds account”, would have otherwise supported the group’s overall cash position.
“The reduction in available cash reflects the continued difficult trading conditions highlighted at the group’s annual general meeting on 28 November 2024,” says the company.
The Star says the cash drain has been caused by essential capital expenditure, upfront fees required to establish its new debt facility, payment of the first $5 million instalment of a $15 million fine slapped on the company by the NSW Independent Casino Commission in the wake of the second Bell inquiry, and “significant” legal and consulting fees.
The company says the cash reduction has also been led by the group’s ongoing transformation and remediation commitments and its contributions to joint-venture projects. This includes developments at The Star Gold Coast and the Queen’s Wharf project in Brisbane which The Star is undertaking with Hong Kong-based Far East Consortium and Chow Tai Fook Enterprises.
“The group continues to work towards the fulfillment of conditions precedent that must be met in order to draw down the additional $100 million under Tranche 2 of the new facility,” says the company.
“A number of these conditions remain challenging to meet given the group’s current circumstances.”
The Star was handed a critical lifeline in September after its lenders agreed to a new $200 million debt facility in a temporary relief plan to ease looming cashflow pressures for the group.
The second $100 million tranche is subject to more onerous conditions than the first, with these funds originally set for drawdown by the end of December last year. Among the conditions for the second tranche are that The Star successfully raises additional capital of at least $150 million.
However, with the company’s share price languishing below 20c each, a capital raising of this scale would equate to almost 27 per cent of the company’s market valuation of $559 million at yesterday’s close of 19.5c each.
The shares slumped to a low of 14.5c on opening this morning, down more than 25 per cent, making this task even more difficult.
However, The Star says that in addition to pursuing the fulfilment of conditions to secure the second tranche of $100 million it plans to explore “other liquidity solutions”.
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