A A$1.6bn (US$1.01bn) 5.5-year loan for an integrated resort project in Australia is in the spotlight and faces the risk of an event of default as Star Entertainment Group, one of the key sponsors, struggles to stay afloat.
The casino operator, a 50% shareholder of Destination Brisbane Consortium, the developer of the Queen’s Wharf project, is pursuing multiple options to raise capital after being left with only A$78m in cash at the end of 2024.
Star Entertainment, which also operates casinos in Sydney and the Gold Coast, has been seeking government support in the form of tax breaks from the states of Queensland and New South Wales in a bid to stave off collapse. Should the embattled company enter voluntary administration, it would trigger an event of default on Destination Brisbane’s loan.
Lenders are watching and waiting, said a banker at one of the lenders on the Queen’s Wharf loan, which has limited recourse to the project’s sponsors. “The state government has a vested interest [in ensuring the project succeeds]," said the banker. "There is also a reasonable equity buffer. As a secured lender, there is additional security from the properties.”
The loan, comprising a A$363m tranche A, a A$437m tranche B and a A$800m tranche C, matures in December. Tranches A and B are for the gaming and entertainment component only, while tranche C is for the tourism and leisure business.
Star Entertainment is providing company guarantees for tranches A and B, while Chow Tai Fook Enterprises and Far East Consortium – both from Hong Kong and owners of 25% stakes each in the project – are equal guarantors for tranche C.
Lenders to tranche A and B have priority voting rights for the acceleration of the mandatory pre-payment of the loan, according to people familiar with the financing.
All three tranches carry the same security package comprising key assets in the project, such as the Star Brisbane casino, hotels, car parks, and event and retail spaces.
The 5.5-year loan reached financial close in June 2020, and since the project was initially slated for completion in 2022, it was expected there would be around three years of operating history before refinancing was required. But the phased opening of the resort did not begin until August 29 last year after multiple delays.
The three JV partners would need to make additional equity contributions totalling around A$400m–$450m for the project to be completed, according to a second banker.
“We are not so worried about the loan, but the whole process has been very painful,” the banker said, adding that the Hong Kong partners are likely to honour their company guarantee obligations to avoid triggering cross-defaults on all of their other obligations.
Star Entertainment, however, faces a difficult situation, although it made a A$36m equity contribution to the Destination Brisbane integrated resort in the last quarter of 2024.
“Because the project is still not complete, it is hard to know the value of the assets,” said a third banker at another lender. “There is a lot of uncertainty. With administration becoming more likely [for Star Entertainment], we have to hope for the best.”
The Destination Brisbane loan offers an interest margin of 200bp over BBSY, which steps down to 180bp over when construction is completed. Financial covenants kick in only after certain milestones are reached, which has not happened yet.
Queen’s Wharf was supposed to be a “cash cow,” said the third banker. “Because it has only been operating for a few months, we don’t know if it can continue to generate good cash.”
Delays, cost overruns
In 2015, the Queensland state government picked Destination Brisbane Consortium to develop the 12-hectare Queen’s Wharf precinct, encompassing entertainment facilities, dining establishments, a new bridge, hotels and private apartments.
The project, which was estimated to cost A$2.6bn at the time, aimed to elevate Brisbane as an international tourism and entertainment destination comparable to Macau or Singapore with the creation of thousands of local jobs.
In the following decade, the project became mired in cost overruns, delays, legal battles and operational challenges.
Lender syndicates put together before the coronavirus pandemic were caught off guard as Star Entertainment faced venue shutdowns, declines in visitors, multiple regulatory inquiries into violations of anti-money laundering rules and restrictions such as mandatory carded play and cash limits that have added pressures to its operations.
In December 2023, Destination Brisbane Consortium reached a settlement on a long-running legal battle with project contractor Multiplex Constructions, costing Star Entertainment up to A$85m.
Challenges for sponsors
Meanwhile, each of the three sponsors of the Queen’s Wharf project is grappling with their own challenges.
Star Entertainment declined to comment for the story, citing a blackout period in the lead up to the release of its half-year results on February 28.
Questions on further equity contributions to complete the project, plans for Star Entertainment’s stake in the project and repayment and refinancing of the A$1.6bn loan “will be addressed in some form or other’’ as part of the results, a spokesperson for advisory firm Sodali, which is representing the casino operator, told LPC Basis Point.
Star Entertainment posted negative Ebitda of A$8m excluding significant items for the three months ended December, compared with a negative Ebitda of A$18m in the preceding quarter. The gaming firm posted a 15% fall in revenues to A$299m from the previous quarter.
On January 29, Star Entertainment said it is continuing “to work on a number of other potential non-core asset transactions,” as it announced a proposed divestment of its Star Sydney Event Centre assets to theatre owner and operator Foundation Theatres for A$60m. The company had previously described the event centre as a A$100m venue.
Last September, Star Entertainment sold its leasehold for its Treasury casino building in Brisbane for A$67.5m to Griffith University. The same month it signed a A$200m loan that carries an all-in pricing of 13.5% per annum assuming cash pay is elected.
Star Entertainment also obtained waivers from lenders after breaching at least one covenant on a four-year loan originally signed at a A$450m size in December 2023. The original interest margin of 650bp over BBSY on a A$300m term loan portion was revised to match the 2024 loan’s all-in pricing of 13.5%.
Key financial covenants on the 2023 loan included A$100m in minimum liquidity, an interest coverage ratio of at least 2.5x and a leverage ratio of up to 4x.
Star Entertainment is now seeking a liquidity solution as it struggles to fulfil conditions precedent to unlock the remaining A$100m from the A$200m loan that was first drawn in December. The second tranche is available for drawdown up to April 9 this year.
Should Star Entertainment enter into administration, it could lead to the stakeholders taking a range of actions.
According to the first banker, the Queensland government cannot be seen to be bailing out Star Entertainment and would only step in to rescue the project after the casino operator enters into administration.
Meanwhile, speculation is rife that Chow Tai Fook and Far East Consortium may buy bigger stakes in the Queen’s Wharf project. Representatives of the Hong Kong partners were in Brisbane earlier in January, according to people familiar with the matter.
The first banker pointed out that for the duo to increase their stakes, or a new equity investor to be brought in, the blessing of the Queensland government will be necessary.
“They need the licence to operate the casino, so it is very complicated,” he said.
Chow Tai Fook did not respond to requests for comment, while Far East Consortium declined to comment.
The duo is developing Queen’s Wharf Residences, a luxury apartment development comprising three towers. The two companies extended the maturity of a separate A$320.68m loan for the first tower to July this year.
The residential towers are financed separately from the A$1.6bn loan for the Queen’s Wharf project and are excluded from the security package for the latter.
The first residential tower connected to the resort is expected to be ready in the financial year ending March 31 2026, while the other two are slated for completion in FY2028.
Chow Tai Fook itself has come under scrutiny for the troubles of one of its units in Hong Kong. The private investment holding company of Hong Kong tycoon Henry Cheng and his family owns a controlling stake of 45.24% in New World Development, which is offering to put some of its flagship properties in a collateral package of about HK$119bn (US$15bn) to win over lenders as it seeks financing to avert a liquidity crunch.
And Hong Kong-listed Far East Consortium reported an impairment of HK$204m in relation to its stake in the Queen’s Wharf project in the six months ended September 30, according to its half-year results reported on November 28. The company cited uncertainties surrounding proposed changes of gaming legislation in Queensland as the reason for the impairments.