The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A key Sarkis Izmirlian ally has questioned the proposed Baha Mar purchaser’s ‘silence’ over its casino plans, given that the gaming facility is “the key engine” in ensuring the development’s profitable success.

Dionisio D’Aguilar told Tribune Business that Chow Tai Fook Enterprises (CTFE), in its statement confirming it was in negotiations to acquire Baha Mar, was noticeably quiet on who would brand/operate the largest casino in the Bahamas and the Caribbean.

He suggested the Hong Kong-based conglomerate, controlled by the family of late billionaire, Cheng Yu Tung, had instead chosen to emphasise its hotel and real estate development background because it didn’t want people “digging deeper” into its casino gaming history.

“Who are they going to employ to run the casino? That’s the big question,” Mr D’Aguilar told Tribune Business of CTFE’s plans for Baha Mar.

“It’s the engine of the resort. You have the casino at the centre, from which every hotel is a spoke. If that’s the end of the business that attracts the most attention, you have to make sure that is run right.”

The former Baha Mar Board member queried whether CTFE and the Cheng family were the ‘best fit’ for the Cable Beach development, given that their casino experience stemmed primarily from the Macau and Asian gaming markets.

“Here we are, bringing in a Chinese company to run and oversee the casino, when 90 per cent of its customers will come from the US market,” Mr D’Aguilar said.

“Who in the US market is going to want to go into a venture with these guys? It’s another flawed attempt by the Christie government to solve this problem.”

Baha Mar, under Mr Izmirlian as its original developer, had employed a ‘casino centric’ business model that put gaming at the heart of its operations.

While it had viewed Atlantis as catering more to families, Mr Izmirlian and his team were targeting the ‘couples’ market through the casino and associated facilities.

Rather than engage an established gaming operator for the casino, Mr Izmirlian decided to place it under Baha Mar’s ‘own brand’, and hire a management firm to run it.

It is unclear whether CTFE and the Cheng family have the same ‘casino centric’ vision for Baha Mar as Mr Izmirlian, and if they will target the Macau/Asian market - as opposed to the US - for clients.

Mr D’Aguilar, though, suggested that through the late Cheng Yu Tung’s business partnership with ‘gambling king’, Stanley Ho, CTFE and its controlling family had been exposed to “dubious activity” in the Macau casino industry.

And, as a result, he questioned whether the Government and its Gaming Board should grant CTFE a casino licence, should it ultimately become Baha Mar’s new owner.

Given that CTFE’s release last week suggested it had just applied for the necessary government permits and approvals, the Gaming Board is unlikely to have yet conducted in-depth due diligence and investigations of the company and its principals.

Mr D’Aguilar specifically cited the late Cheng’s business partnership with Mr Ho in Sociedade de Turismo e Diversoes de Macau (STDM), which leveraged the monopoly granted to it in 1962 to become Macau’s leading casino gaming developer.

“The key to this thing is the casino. They don’t want you to dig any deeper,” he added of CTFE and its silence on the casino. “That’s why they’re not mentioning the casino.

“It’s something that they were noticeably silent on, and they don’t seek to emphasise: Their experience in casinos, because their experience is riddled with dubious activity.”

Mr D’Aguilar continued: “As you know, the anchor of Baha Mar is the 100,000 square foot casino, the largest in the Caribbean, and two-and-a-half times the size of Atlantis, and we are letting these people come into our country to operate our largest casino,” the newly-ratified FNM candidate for Montagu told Tribune Business.

“It scares me to death that we are putting them in charge of the engine of our tourism product. God knows where this is going to lead.”

Mr D’Aguilar’s concerns appear to be based on a May 18, 2009, report by the US state of New Jersey’s gaming enforcement division, dealing with a proposed Macau casino joint venture between MGM Mirage and Stanley Ho’s daughter, Pansy.

The report, which has been seen by Tribune Business, said the information produced relating to Mr Ho “precludes any other finding that he is unsuitable” as a partner for MGM Mirage.

Its concerns centre on the VIP (Very Important Person) gaming rooms in STDM’s Macau casinos, which were frequently leased to third-party operators in return for up-front fees.

These operators would then enter into agreements with gaming junket operators/promoters, who would attract high-rollers and regular gamblers to gamble in the VIP rooms, in return for commissions.

“Asian organised crime, attracted by the growing gaming market and accommodated by the establishment of VIP rooms in STDM casinos, penetrated the Macau gaming market,” the New Jersey report said.

“The VIP rooms in the STDM casinos provided organised crime the entry into the gaming market that it previously lacked.”

The New Jersey report revealed that MGM first had Macau joint venture partnership discussions with New World Development, the publicly listed subsidiary of CTFE, which is also controlled by the Cheng family.

The late Cheng Yu Tung was described as “an individual with extensive and longstanding associations” with Stanley Ho, and MGM’s executive committee approved talks over a Macau joint venture with New World Development on June 5, 2001.

Apart from the late billionaire, others involved in the MGM talks included his son and current CTFE principal, Dr Henry Cheng Kar-Shun, and Chan Siu Hung, a VIP room promoter.

“Cheng Yu Tung has had extensive business relations with Stanley Ho, is a substantial shareholder of STDM, and holds governance positions on the boards of STDM and Shun Tak,” the New Jersey report said.

“Chan and Cheng Yu Tung had established VIP rooms together in three different STDM casinos.”

MGM’s chief executive, Terrence Lanni, later wrote a proposing that entities controlled by Henry Cheng and Chan take 40 per cent and 20 per cent equity stakes, respectively, in their joint venture.

But in later testimony, both Lanni and another MGM executive testified that “they had reservations about Henry Cheng as a partner”, although the report did not detail what these “reservations” were.

The discussions with the Chengs came to an end in 2002 after casino deals were signed with Macau’s initially-selected gaming partners. It is the New Jersey report, though, that Mr D’Aguilar and others appear to be citing to back up their claims that CTFE and the Cheng family are unsuitable casino licensees for the Bahamas.

Yet as a ‘smoking gun’, the report appears to fall short of the mark. There is nothing in it, for example, that directly ties CTFE, its subsidiaries or the late Cheng Yu Tung and his family to any wrongdoing or alleged links to the Triad organised crime gangs. The only ‘tie’ is through their connections to Stanley Ho.

This suggests that the concerns being articulated by Mr D’Aguilar and others, as it relates to the Cheng family and CTFE, may be somewhat overblown, especially as they are involved in the $3 billion Queen’s Wharf project in Brisbane, Australia - a development that involves a casino gaming licence.