Amax: Melco Crown breaches junket contract

Tuesday, January 26, 2010
Issue 925, Page 3
Word count: 722
Published in: Macau Daily Times

By Poyi (Natalie) Leung

Amax Holdings, a Hong Kong listed company engaging in gaming promotion business through its subsidiaries in Macau, accuses Melco Crown Entertainment of having entered into individual agreements with junket promoters since December last year without the consent of its related business partner.

Amax Holdings, through its wholly owned subsidiary Ace High Group Limited, entered into a First Profit Transfer Agreement and Second Profit Transfer Agreement with AMA International (AMA) in 2007 and 2008 respectively after AMA, a junket license holder to operate junket business in Macau, signed a Gaming Promotion Agreement with Melco Crown Entertainment in August 2007.

The Gaming Promotion Agreement sees AMA being appointed to market and promote Altira Macau and to introduce and bring gamblers to play at the Taipa casino through its collaborators (junket promoters) under the Gaming Intermediary Agreements.

According to the announcement issued by Amax Holdings on Sunday in response to two recent press articles, in return AMA is entitled to receive commissions for services rendered under the Gaming Promotion Agreement. Such profit is shared between Amax Holdings and AMA on 80:20 basis under the First and Second Profit Transfer Agreements.

On the website of Bloomberg on January 13 and a January 14 report by Citigroup Global Markets Inc., it was stated that “During the 4th quarter of 2009, Melco Crown Entertainment [“Gaming Operator”] has restructured its Gaming Promotion Agreement with AMA at Altira Macau given the current commission cap regime. Although the aggregator model now appears dead and buried, VIP rollings are already back to normal levels, with all junket commissions now set at 1.25%”.

In addition, it was reported that “Gaming Operator’s earnings will be hurt as it transitions from its super junket arrangement to dealing directly with junket operators”.

Due to the release of this “sensitive information” which might affect Amax Holdings’ share price, the company requested to suspend its trading in the shares on the Hong Kong Stock Exchange from January 18 to January 22.

In order to clarify the situation before resuming its trading, Amax Holdings said on the January 24 announcement that AMA has confirmed that due to Macau’s changes to fix the commission cap at 1.25 percent, AMA and Melco Crown Entertainment have signed a revocation agreement in respect of the Gaming Promotion Agreement on December 23, 2009 and on the same day, they entered into a new Gaming Promotion Agreement.

“An agreement on gaming promotion is still in existence and AMA still has the operating right at Altira Macau,” it continued.

However, the company also said that “without the consent of AMA, the Gaming Operator has unilaterally entered into separate agreements with the collaborators since December 2009 to whom they are under the Gaming Intermediary Agreements with AMA”.

The announcement showed that to date Amax Holdings is still in talks with AMA concerning its contractual arrangement and business relationships with Melco Crown Entertainment and the junket promoters, especially the validity of those “separate agreements” and the enforceability of the Gaming Intermediary Agreements.

“At present, the Board does not have sufficient information to access the potential financial impact. Depending on further talks and arrangements with all parties concerned, it may have an impact on the value of Available-for-Sales Financial Asset and profit of the Company [Amax Holdings],” the announcement added.

Melco Crown Entertainment, in response to the Macau Daily Times’ enquiry, said that it “will strive to maintain existing and build new relationships across our operations in Macau, so as to remain competitive and have full respect for the prevailing contractual and regulatory frameworks within which we operate.”

It did not confirm whether the “separate agreements”, as mentioned by Amax Holdings, do exist.

Amax Holdings resumed its trading on the Hong Kong Stock Exchange yesterday. However, it soon became one of the top-percentage losers in Hong Kong, as the shares slumped 9.14 percent to HK$0.179 (the lowest at HK$0.17 during yesterday’s trading), “its lowest in more than eight months after the company issued an uncertain earnings outlook because of a change in Macau’s laws governing the gambling industry”, according to Reuters.

Formerly known as Amax Entertainment Holdings, Amax Holdings also holds just under 50 percent stake at the Greek Mythology Casino in Macau.

In addition to the two SARs and rest of mainland China, the Hong Kong-based company operates in the US, Malaysia, Japan and South Korea, Bloomberg reports.

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