It is not a trade deal, a global celebration or a sports event that is currently uniting countries, it is the fight against the novel coronavirus and strategies to control its possibly grave ramifications to every aspect of human lives.
COVID 19 has its epicenter in Wuhan City, China and is a highly contagious respiratory illness caused by the novel coronavirus. As per World Health Organisation (WHO), the virus has nearly 2 million confirmed cases globally and over 131k deaths till date. It is undeniably worrisome that there are presently no approved treatments for COVID 19, though pre-clinical and clinical trials remain in progress.
With economies adhering to lockdowns, social distancing and travel bans to restrict the spread of the contagious virus, both businesses and economies are suffering along with repercussions on human health. Stocks exchanges have been on a sell off spree and a bear market situation has been sinusoidally indicated in the past few weeks.
Intimating customers and investors in the pandemic hour has been an obligation that businesses have been abiding by, and in this article, we will discuss ASX-listed The Star Entertainment Group Limited (ASX:SGR), that has recently updated the market and media regarding the COVID-19 related directives and probable impacts.
SGR’s COVID 19 Response
Since 23 March 2020, The Star’s properties have been shutdown owing to the COVID-19 related directives that mandated the closing of non-essential businesses. The shutdown is likely to have a material impact on the business, though the Group is implementing several essential measures to boost its balance sheet and preserve liquidity in the ongoing conditions.
Chairman John O’Neill AO believes that the Group’s cash and undrawn debt facilities are at a robust level and offer a high level of security as the business community continues to navigate uncertain times.
Let’s deep dive to comprehend the Chairman’s take-
Additional Debt Funding Facility
With the intent to bolster the Group’s liquidity position, SGR has executed an additional debt funding facility for $200 million with existing relationship banks, which has a 12-month term. The Group has available cash and undrawn debt facilities worth approximately $700 million, including the new facility, which reportedly provides sufficient liquidity for an extended period of shutdown of the Group’s properties.
The estimated required cash under a shutdown amount to ~$220 million in a three months shutdown (till 30 June 2020) and are close to $320 million in six months shutdown (till 30 September 2020).
Waiver Agreement from Debt Providers
SGR has secured agreement for a full waiver of its gearing and interest cover covenants from all its debt providers at the subsequent covenant testing date (30 June 2020). Pertaining to the same, cash dividends will not be paid until gearing is below 2.5 times.
Reduction of OPEX & CAPEX/ JV Contributions
The Group has implemented actions to substantially reduce operating costs (OPEX) and capital expenditures (CAPEX) that are likely to have an impact on SGR’s FY20 and FY21. The Group has finalised staffing needs till the properties remain closed, resulting in close to 8.5k staff being stood down.
From April 2020 until existing restrictions begin to lighten, SGR’s OPEX is estimated to be ~$10 million. As provisions for employee benefits, the Group currently has ~$70 million that can be availed by employees. Moreover, for the remainder of FY20, SGR has decided to reduce non-executive director fees by 50% and the CEO’s salary by 40%, with other senior executives nodding to reductions too.
The JobKeeper Payment program is likely to follow with SGR getting a wage subsidy worth $1,500/ fortnight per eligible member of staff from the ATO has been applied for access as an eligible employer.
On the CAPEX end, there has been ~$25 million reduction for FY20 versus the ~$250 million guidance (25% savings for 2H FY20 versus prior plans). For FY21, there has been a substantial cut on the ~$175 million guidance (which was intimated in the 1H FY20 results).
Moreover, the Group’s expected JV contributions for FY2020 and FY2021 are ~$175 million and ~$150 million, respectively. Primarily, these relate to the first JV tower at The Star Gold Coast and the Queen’s Wharf Brisbane. It should be noted that construction at both the projects has no present impact of Government directives and is progressing to plan.
Besides these measures, under its business interruption insurance policy, the Group has lodged a claim to the properties shutdown and is working via the claim process.
The SGR stock further validates shareholder trust on the Group, as it settled in green at $2.62, up by 2.34 % after market close on 17 April 2020. The stock has an annual dividend yield of 7.82% and has delivered a return of 25.96% in the last one-month period (as on 16 April 2020).
The current times are truly unique and beyond one’s control. However, SGR seems to be proactively balancing the necessary measures needed to protect the business and simultaneously adhering to the considerable human impact on its workforce.
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