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For market watchers and regulators alike, The Star Entertainment Group (ASX:SGR) is a gift that keeps on giving.
After revealing earlier this month it’s been burning through millions in cash at a rate unsustainable – to such an extent some analysts now predict a 50/50 chance of bankruptcy – at 10.30am on Tuesday Sydney time, the stock price is at record low levels.
It’s not just Star – I’ve written before on how investors appear to be turning off the listed Australian casinos broadly following money laundering scandals – but Star currently looks a lot like it could be Canberra’s first true scalp in what has been a palpable crackdown period on the sector over the 2020’s thus far.
Because of that long-spanning crackdown, it hasn’t been an overnight journey to get here. It has been the death of a thousand cuts for the casino operator, now feeling the weight of numerous massive court fees (ultimately borne from intense government scrutiny,) a suspended operating licence, lengthy regulatory reviews, and now a tanking share price.
JP Morgan & Xingchun Wang
But that tanking share price has caused interest from intriguing places.
On Tuesday, Wall Street’s JP Morgan swooped in and increased its shareholding in Star while shares were worth 12.5cps, giving JP a 6.35% holding in the company.
JP Morgan picked up ~37M shares in the company, worth around $5M (rounding up). That was enough to boost shares to 14cps on Tuesday.
But even more tantalising was an investment from a relatively mysterious Macau-based Chinese investor, Xingchun Wang, who on Monday picked up 5.52% of the company.
Update: just before lunchtime on Tuesday, Star revealed Xinchung Wang’s shareholding now sits at 6.5%.
“Certain agreements entered into with Liquor and Gaming NSW and the QLD Office of Liquor and Gaming Regulation contain restrictions prohibiting an individual from having a voting power of more than 10% in the Company,” the company wrote on Monday as it revealed Wang’s shareholding.
(This finance journalist can’t help but wonder if that was a message intended to be read by Xingchun himself.)
The big question: so what next for Star?
From the outset, it’s plain to see that should Star be snatched up by one entity or a consortium, there’s still the issue of those investors will effectively buy a casino that is still without a licence.
It will also be a casino attached to a brand probably well known for having lost a lot of investors’ money – one-year returns are down -73%.
The first issue is whether or not the NSW government will return Star’s licence at all, which is uncertain and responsibly unknowable.
Its licence suspension will next be reviewed in March by the NSW government, but given the rate of cash burn recently evidenced by Star itself, it’s not clear the company can even make it that far.
Should it do so, it’s clear to see the JP Morgan shareholding (larger than Xingchun Wang’s) will be the more likely contender to shift anything at all. Not only because the investment bank has a government affairs team, but also because the geopolitical China story doesn’t really permit a troubled casino presumably reopening under full-bore Chinese ownership.
But still, here it’s not knowable where, exactly, Star will eventually end up. Perhaps JP Morgan just wants the infrastructure.
SGR last traded at 12.5cps.
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