The boss of struggling casino giant Star Entertainment Group is confident it will avoid further job losses after the NSW government dropped a potentially fatal tax scheme, but investors warn the future of the disgraced business remains uncertain.
Chief executive Robbie Cooke on Friday welcomed NSW Treasurer Daniel Mookhey’s decision to revise a planned duty rate increase on the group’s poker machine profits to avoid closing Star Sydney’s doors on its 3500 employees.
“The issue we were dealing with was an arbitrary and poorly considered thought bubble which put a completely unsustainable hurdle on the business at a time that it was having to face a whole series of other hurdles. Finally, there’s been consideration given to the need to protect jobs, the need to ensure the business is viable … We’re very comfortable with what we’ve agreed to,” Cooke said.
Cooke took leadership of the group the day Star Sydney’s casino licence was suspended following damning findings by a NSW independent inquiry into anti-money laundering and counterterrorism failings. He said it was reckless of former NSW treasurer Matt Kean to suggest such “poorly thought out” taxation as punishment.
“As a leader of a business I rely on the common sense of governments prevailing,” he said. “I found the Matt Kean approach very arbitrary, poorly considered and very unusual. I have never seen that in 30 years of working in corporate roles. I’ve never seen a government make a decision like that.”
Kean doubled down on his previous defence of his tax proposal, saying the Coalition government acted on the information available to the market at the time.
“Our government made policy decisions on the belief the casino company had made appropriate declarations to the ASX about its true financial position,” Kean said.
Mookhey confirmed the new tax arrangement – which will generate $2.7 billion from Star over the next decade – on Friday following a report by the Herald on Thursday.
The arrangement will legally require Star to maintain more than 3000 jobs in NSW between now and 2030. The Pyrmont casino will also have to participate in the state’s cashless gaming trial, with 50 poker machines and eight tables in high-volume areas to go cashless from October.
Although Star’s share price rallied more than 20 per cent to $1.16 after the announcement, the business has a lot more to do before future profitability is secured. When Kean announced his proposal, the group’s share price was $2.38 and fell as low as 97¢ before the revised agreement.
One major fund manager not authorised to speak publicly said clarity on the NSW tax was the first of four key questions which will determine the future of the group. The other three pertain to how much Star will have to pay the corporate regulator over its many criminal failings, how it will refinance debt facilities, and whether it will open the Queens Wharf premises in Brisbane in April.
Star is facing four shareholder class actions and is in the middle of a very expensive path to remediation. It is also bracing for what is expected to be one of the biggest financial penalties issued by the corporate regulator AUSTRAC.
The group has already made 500 roles redundant across its Sydney and Queensland casinos from its 8000-strong workforce since the proposal was first announced.
Kean in December proposed profits from Star’s poker machines be taxed at a top rate of 60.7 per cent to generate $364 million in extra revenue over the next three years. If legislated, it would have come into effect in July and essentially doubled its tax rate. Kean’s announcement blindsided The Star’s leadership.
Star’s share price has plummeted by more than 60 per cent this year to 97¢ and its market capitalisation has halved to $11.7 billion.
Mookhey also flagged the government will enter talks with Crown Resorts to ensure its table games profits are also subject to higher taxes. “Should we not reach an agreement with Crown, the government reserves the option to introduce legislation to make that change as well.”
NSW Liberal Party deputy leader Natalie Ward accused the government of misplaced priorities.
“I don’t know of any business in NSW that has the luxury of the premier saying, just pay the tax that you think you can afford,” she said.
“This is a big casino, this is big gambling and he’s handed this reform to them ignoring families, ignoring small businesses.”
Crown – which was bought by US private equity giant Blackstone for $8.9 billion in 2022 – operates under a provisional casino licence that stipulates it must not have poker machines in its Barangaroo casino. This means The Star has casino poker machine exclusivity in NSW despite only holding about 2 per cent of the machines in the state.
Mookhey commissioned three separate assessments of Star’s financial position to determine a revised taxation agreement as it became clear the group could not pay what Kean had proposed without closing the Sydney casino.
“We would have seen a ‘closed’ sign hanging up on Star’s premises,” Moohkey said.
Although the new agreement means Star ultimately will pay more tax, it is over a longer period and means the group is no longer required to immediately extract $100 million from a cost-base of $450 million.
Instead, the transitional rate means Star will pay 20.9 per cent on its poker machine profits from next July, which will increase to a maximum of 51.6 per cent by 2030.
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Source: Thanks smh.com