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Small Saipan casino catches up with Macau peers

Mark Brown of Best Sunshine International, left, and Shen Yan, of Imperial Pacific International Holdings.

HONG KONG -- Best Sunshine Live, a small temporary casino with 48 gaming tables that opened last year in a duty-free mall on the U.S. Pacific territory of Saipan, generated more profit in the first half of the year than Melco Crown Entertainment, operator of four large casino complexes in Macau and Manila.

Imperial Pacific International Holdings, parent company of Best Sunshine International, reported a half-year net profit Tuesday of 837.3 million Hong Kong dollars ($108 million) on HK$3.99 billion in revenue from Best Sunshine Live, which cost $25 million to set up.

By comparison, Melco Crown, which has invested billions of dollars in its properties, reported $70.6 million in net profit for the same period, while rivals Wynn Macau and SJM Holdings each earned HK$1.1 billion and MGM China posted a net gain of HK$1.3 billion. Imperial Pacific's Hong Kong-listed shares nevertheless fell 1.3% to 15 Hong Kong cents in trading Tuesday after the results announcement.

Some 95.7% of Imperial Pacific's revenue came from Best Sunshine's VIP gambling tables. Company officials said Tuesday that around 500 VIPs from mainland China, Hong Kong, Macau and South Korea had paid 600 visits to the casino during the half-year. VIP betting volumes hit a high of $3.19 billion in April due to what an official called "one-off" visits by a couple "super VIPs."

"We think we have already hit maximum," said Shen Yan, president of global capital markets at Imperial Pacific, on Tuesday. With hotel rooms currently hard to come by in Saipan, especially for top-end visitors, Best Sunshine converted a few private homes for use as guest villas and also acquired five yachts. "The utilization rate of our [gaming] tables is very high," Shen said. "Our accommodations - villas, boats, etc. - are almost full. We have no more room to grow."

Best Sunshine's peers in Macau are suffering from the opposite problem, with VIP tables going unused and hotel occupancy falling. Wynn Macau, MGM, SJM and Melco Crown each reported a decline in VIP betting volume of more than 20% in their latest results.

Mark Brown, chief executive of Best Sunshine International, credits his casino's success with VIPs on its services in Saipan. "Because of the yachts that [the VIPs] are staying on, the staterooms, having the private 24-hour chefs and other service, staying at the villas, this is what took [our] numbers to the next level," he said. "It's just the overall experience of fishing and scuba-diving and snorkeling and sky-diving, all of the things that go with a beautiful island."

Another key element in Imperial Pacific's profit performance, noted by Shen, is fewer taxes. While Macau casinos have to pay 40% of gross gaming revenues to the government, Best Sunshine pays no gaming tax though it does pay regular business taxes and other fees.

While most VIP players gamble on credit, company officials downplayed concerns they might have difficulty collecting on gaming losses. Shen said 76% of Best Sunshine's VIPs are backed by guarantors who have made cash deposits with the casino.

The VIP business is set to grow further as officials said Saipan this month approved the first application from a junket agent to work with Best Sunshine. Chief Operating Officer Kwong Yiu-ling said he expected another 17 would be approved by the time the company opens its $550 million Grand Mariana Casino Hotel in January, though the company is still working to persuade the regulator to allow Macau-style revenue sharing arrangements with the junkets as an alternative to commissions.

The company also plans to open the first phase of a separate $2 billion casino resort complex, to be developed with hotel partners, in 2018. Questions though are rising about labor as Saipan recently bumped up against a cap on foreign workers which forced Best Sunshine to temporarily send some staff home to the Philippines.

Shen said that Best Sunshine is seeking the Saipan government's help to lobby the U.S. federal government to raise the cap. Best Sunshine has established good political connections in Washington, with a former federal judge and an ex-director of the Central Intelligence Agency on its board of directors. A separate board advisory committee includes a former director of the U.S. Federal Bureau of Investigation and ex-chairmen of the Republican and Democratic national party committees.

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