HONG KONG: Macao, the world's biggest gambling hub, will limit the commissions paid to junket operators to 1.25 percent of the betting chips purchased by high rollers, thereby helping cut casino operators' costs.

Las Vegas Sands Corp, SJM Holdings Ltd and the four other operators in the only Chinese city where casinos are legal have until October 1 to alter agreements with companies catering to so-called VIP gamblers. The cap will apply to future and current commissions, Francis Tam, Macao's secretary for economics and finance, said in the government gazette published on Monday.

Macao's six casino operators, including Melco Crown Entertainment Ltd and Galaxy Entertainment Group Ltd, lobbied the government to limit the commissions. The casinos pay the agencies a percentage of the amount high rollers spend using non-negotiable chips, which they can't convert back into cash.

"We expect a commission cap at 1.25 percent could boost VIP casino operators earnings before interest, taxes, depreciation and amortization (EBITDA) by 5 percent to 27 percent," Morgan Stanley analysts Praveen K Choudhary and Corey Chan said in a note to clients yesterday.

SJM rose 6.4 percent to HK$4.81 in Hong Kong trading yesterday, boosting its 2009 advance to 185 percent. Galaxy, controlled by tycoon Lui Che-woo, rose 0.5 percent to HK$3.81 and has more than tripled in market value this year.

Melco International Development Ltd, run by Stanley Ho's son Lawrence Ho, rose 0.2 percent to HK$5.88. The company, whose market value has more than doubled this year, is Australian billionaire James Packer's partner in Melco Crown.

Wynn Resorts Ltd and MGM Mirage's venture with Stanley Ho's daughter Pansy Ho are the two other operators in Macao.

Amax Holdings Ltd, Macao's biggest junket operator, was paid a commission of 1.33 percent before the reduction, Angela Wong, the company's vice president for investor relations, said in a phone interview yesterday.

The commission cap may boost Galaxy's earnings before interest, taxes, depreciation and amortization by 27 percent, as 73 percent of the company's gambling revenue comes from high rollers, the Morgan Stanley analysts said.

SJM's earnings on that basis may gain 16 percent, Melco Crown's 8 percent, Las Vegas Sands' 6 percent and MGM's 5 percent, they wrote.

Stanley Ho, the recently hospitalized, now recuperating billionaire who controls SJM, the Macao operator with the biggest market share, said July 28 that the commissions were too high and should be limited to 1.25 percent. The casino operators earlier this year set up a coalition and pledged to work together as gambling revenue declined.

Bloomberg News

(HK Edition 09/23/2009 page3)