Keywords: Cambodia, Nagaword, border casinos, “absence” of regulation, negotiable tax rate/licensing fee in Cambodia, The Philippines, PAGCOR, Entertainment City, Manila Bay, Resorts World, catering to domestic market, Bloomsbury, Solaire, Paul Steelman, casino development contingent on political stability and state support, rising middle class

G2E Asia 2010

00:00                     Fredric Gushin:  Okay.  Good afternoon everybody.  Welcome to our session.  The Philippines, Cambodia and Malaysia:  The Established Jurisdictions.  For those of you who have attended the sessions today, you’ve seen several other presentations talking about the potential of Asia, and clearly, Asia is where the action is now in the gaming world.  Time and time again, we’ve seen new jurisdictions beat or exceed expectations.  We’re going to have a very interesting discussion today relating to the established jurisdictions where, even though they’re established, there are still a lot of action taking place in these jurisdictions.  My name is Fredric Gushin.  I’m managing director of Spectrum Gaming Group.  We do a lot of work out here in Asia with our sister company Spectrum OSO Asia with offices in Bangkok and we’re in Macau, Hong Kong, Tokyo and parts of China as well.  We’re very fortunate today to have an outstanding panel.  I’ve been doing these sessions for many years, and we do have a veteran gaming executive panel here that brings a lot of expertise to all the issues we’re discussing today.  I’m going to dispense with the bios because they’re in the program and we only have one hour, but we will have each speaker do a 7-10 minute presentation.  I want to encourage questions from the audience.  We’re going to have a dialogue as much as possible, and we certainly have a lot of issues to cover.  As I indicated, there are many exciting issues throughout all of Asia.  I was at the opening of Resorts World Sentosa in Singapore in January.  Macau is a story into itself.  The growth of gaming in those jurisdictions is phenomenal and Singapore is at the beginning of an incredible path.  Success is more than has been expected at this point in time, and the casinos — the two integrated Resorts in Singapore are off and running.  Japan, Taiwan, India, and Vietnam are all potential jurisdictions that are in various phases of considering a legalized gambling, and certainly, there is a lot of attention to Japan with the recent political situation.  Taiwan has basically announced the path of legalized gaming and is in the process of implementation.  The countries we’re going to focus on today — Cambodia has had gambling since the 1990s.  The Philippines has had gambling for a long time, but the modern era began with new PAGCOR in 1986, and Malaysia has had gambling for well over 40 years.  So while these are established jurisdictions especially in the Philippines and Cambodia, there are some interesting and exciting developments.  Our speakers are going to address both the opportunities and challenges in all of these jurisdictions, and I’ve been going to the Philippines since the 1980s in a professional capacity, and we’ve heard about all the development opportunities over the years, but it seems like it’s really taking hold over the rest of the year or so and Philippines is clearly an exciting place where there’s a lot of gaming developments in progress happening at the present time.  So I really want to again encourage your comments and your questions.  Each speaker will do a 7-10 minute presentation.  I’ve intentionally left time to answer your questions and to have a dialogue with the speakers.  So, our first speaker is going to be Tim McNally from Naga Group and chairman of Naga Group, but he really has an extensive background here in Asia.  He worked with the Hong Kong Jockey Corp for many years and had a distinguished career with the FBI in the United States.  Tim?

04:01                     Tim McNally:  Thank you.  Thank you very much.  May I just have a quick, may be show of hands how many people have actually been to Cambodia.  Alright.  That’s a good healthy or at least a dozen, dozen and a half.  Hopefully, my perspective might be interesting in the sense that I’m not a gaming operator or a senior executive by background experience.  My real background is on the legal as well as regulatory side, and I’ve been involved with the NagaCorp really since 2005, just as they were working their way through a publicly listing in Hong Kong.  You know, I think probably a good place to start and I’ve got to be sensitive to this timetable is Cambodia itself.  Many people that we speak with around the world, number one still think that, first and foremost, Cambodia might be unsafe, and secondly, I think they really have two things that come quickly to mind about Cambodia — ancient temples.  Obviously, a rich culture and heritage but also the second thing that comes to mind is a very dark period in Cambodian history from 1975 to 1979, the Pol Pot regime.  And really, all the devastation and negative components that went with that, not only the genocide of a huge number of people but also the flight or a brain drain of so many to other parts of Europe, North America, and other places in Asia.  So keep that in context from 1979 to 1989.  Really, there was a stewardship by the Vietnamese government and really, Cambodia did not have national elections until 1993, sponsored by the UN.  Then even after that government election, power was shared through the first administration, but what I’d say is that there have been four elections since then.  In terms of safety, I can tell you — you can walk the streets of Cambodia, you don’t see people in the camouflage outfits and wearing bandoliers and it’s a very safe country that’s progressing quite well.  But keep in mind also when you really wiped out almost a generation, you take away management experience.  There was money that literally left the country.  So money management and manpower is something that Cambodia incrementally is rebuilding.

Cambodia is a country of about 14 million people. The median age is 22 years of age.  96% of that population is under the age of 65. It is bordered by Thailand, Vietnam and Laos.  Thailand alone and Vietnam, you know, 150 million plus.  So in terms of both tourism as well as our business strategy, it’s not only the broader Southeast Asia but certainly our neighbors.  Infrastructure has been improving considerably over the years.  Infrastructure primarily in terms of roads and connecting up the country from the Chinese government, a great deal of indirect investment from Korea and the property market, and a great deal of the money in the NGO area coming from the US and other parts of the world.  Let me just make a couple quick comments about –.  If you looked at Cambodia in terms of per capita income, it’s around 1900.  For the last five years, your average of the GDP growth is 6.8.  Tourism has been on the rise.  Really, 10 years ago, tourism would have been around 400-some thousand, 2009 over 2.2 million and growing, producing revenue receipts of 1.6 billion dollars.  As far as the casino and gaming business in Cambodia, going back to no money, no management and starting really from a very low base, the Cambodian government started allowing gaming in the mid-90s.  There are approximately 20-some casinos around the country.  They close, they open most around the Thai and Vietnamese border, but that in the southeast Poipet and the north along the Thai border, Khao Kong, Kham Pok and Poke-O mountains, these casinos are not easily accessible by airports.  Most of the traffic for the casinos on the Vietnamese and Thai borders are localized traffic.  So why the casinos?  When you’re starting from scratch, one it created local employment.  Secondly, it certainly provided a form of tax revenue or licensing revenue for an emerging country.  The local commerce also, in terms of gaming, when you looked at Vietnam and Thailand, there were restrictions, so that border traffic contributed much to the development of those local casinos.  In terms of characteristics of the border casinos, yes local traffic.  In terms of the facilities, they vary in size considerably.  Some of the border casinos may have 100 or more gaming tables and a large number of gaming machines.  In terms of taxes, this would be consistent with part of, call it, a developing Cambodia.  Rather than, you know, a 39% tax that you would find in Macau, you’ll find that there’s a negotiated tax rate with each one of those border type of casinos.  I’ll get to the specifics regarding Naga.  Basically, the government of Cambodia issues a permanent terms of building.  But like I said at the current time if I would have to frame where Cambodia is in terms of the gaming industry, there certainly is an insufficient amount of regulation or oversight on a number of those gaming casino in terms of suitability or the background of the licensing people.  In terms of their financial success, it’s not the degree of transparency there yet.  We would view Naga as not really a competitor with those other border casinos.  Naga is a publicly listed company since October 2006 on a Hong Kong Exchange.  The government, having said that there’s insufficient regulation, there’s clear evidence that regulation is heading in the right direction.  In 2007, the company passed a money laundering legislation for the country.  Just in the last 18 months, they shut down a number of illegal operators in terms of slot operations.  And in Cambodia for that industry to progress, certainly it’ll be in the interest of the country to formalize a structure, develop specific legislation for the gaming industry and sort out some of the aspects regarding the number of licenses as well as suitability.  This will also bring about obviously confidence for certainly investors of NagaCorp as well as those who want to venture into Cambodia’s gaming operators.  As far as our competitive strengths, like I mentioned, we’re listed on the Hong Kong Exchange.  It has its own requirements in terms of transparency.  We pay our — rather than a tax, it’s a clearly a fee on our license.  It amounts to less than 2% versus, you know, obviously 39% in Macau.  We have a license for 70 years, a monopoly within a 200 kilometer radius of Phnom Penh till 2035.  Dr. Chen really was a pioneer.  He is the founder of the corporation majority shareholder who came in to Cambodia really in the late 80s.  In the early 90s, he responded to our public tender put out by KPMG of Australia where the Cambodian government was trying to attract outside investments.  There wasn’t a big queue to get into Cambodia at the time.

We’ve had a strong dividend policy as far as 50% of distributable profits. As a company, no debt, no gearing.  Our strategy – very quickly would not be head on with the likes of the Macau or the Singapore gaming market.  We’ve always had a history wherein before we move on land into the existing facility, the largest building literally in the country is NagaCorp.  The largest MICE facility in the country is NagaCorp.  Everything is new and really expanding in terms of the services in the area of entertainment, and we’ve taken the view that in addition to building the gaming business, we’ve been a good neighbor, a good citizen as far as participation and sensitivity to the fact that the country is a 97% Buddhist country, so we’ve had to balance our growth with obviously fitting in to both the culture as well as the government’s efforts to control the growth of gaming.

Our construction, our facility at NagaCorp was a 150 million US that includes a 508 room hotel, 184 gaming tables, spa, 11 food and beverage outlets. We are the entertainment complex of Phnom Penh, and like I mentioned, most of the national conferences and conventions are held in our facility.  Recently, we hosted the prime minister of Malaysia and the prime minister of Cambodia about tourism growth as well as direct investment into Cambodia.  Only in the interest of trying to share my time, I’m going to try to summarize a couple things real quick.  Like I said, our business was built on a junket model.  We paid higher commissions simply because we could afford so based on our low labored cost and our construction cost.  So we had a very favorable situation in terms of building a junket operations from Malaysia, Singapore and China, but we’ve tried to diversify broad land base right now, slot machines are about 30% of our business, the public gaming floors are growing a great deal from both traffic from Vietnam as well as local Cambodians with passports.  There are restrictions of our local Cambodians, but like Singapore, I think their government is exploring ways to allow local participation, not finalized by any means, but keeping in mind many of the wealthy, many of the business people left Cambodia and returned.  We have the benefit of participation by many, many Cambodians obviously who possessed foreign passports.  So, in the interest of keeping the timetables, I will hold off and provide you an opportunity to ask some questions about Naga and the rest of the industry if time permit it.  Thanks Fred!

16:46                     Fredric Gushin:  Our next speaker is Donato Almeda, managing director of Bloomberry.  Bloomberry is a company that’s building a property in the Philippines, in Manila.  Don has experience in the gaming industry in the Philippines, having worked at Waterfront and was an operator and executive and partial owner of that company for many years.  Don?

17:24                     Donato Almeda:  Thank you Fred.  Good afternoon.  These are exciting times in the Philippines, not only in terms of the gaming industry but particularly the tourism industry in general.  Of course, everybody knows that we just came after our general elections for our president.  So, as a matter of fact, I know that our new president is being proclaimed as I speak today at this time, so.  In any way, I’m here to talk about our project.  Bloomberry is one of four licensees from PAGCOR to operate a private licensed casino in the Philippines, and this is an offshoot of PAGCOR’s new charter that was pretty much extended from 2008.  So, I’m here also to present a brief perspective of our project in terms of what’s going to happen two or three years down the road.  We’re pretty much in our final stages of design development for this project.  We’re hoping to do our first pile-driving by September and hopefully, start the hardcore construction by January of next year and we’re hoping to open by the last quarter of 2012.  So we’re pretty much on schedule and I’d like to present a short video just to present the prospect of our project.  By the way, we’re bringing in the — I would like to thank the guru of the hotel and resort if not the casino industry in terms of design that were being posted here for our projects, so here we go.  We don’t have the audio? We’re calling this project Solaire as has been deemed proper by Paul Steelman.  We’re open to changing that brand as we go through the design development.  We’ve been allocated 8.3 hectares in the Bagong Nayon Pilipino Entertainment City.  This is a 494-room hotel, sitting on about 18,000 square meter of gaming podium.  We’ve got a bayfront where all the VIP villas and gaming suites are all overlooking the Manila Bay.  We’ve got a 10-storey structure parking that can accommodate about 1700 spaces and an approximately 600 of surface parkings ready for our phase 2.  Again, we’re pretty much in the final stages of our design development.  We’re hoping that in a couple of months, we will be starting our construction documentation in time for our piling work and construction by September for the piling work and the construction by January of next year.  We do have three fine dining restaurants where about 350-seating capacity, four guests or dining restaurants approximately about 850-seating capacity and, five bars.  On the gaming side, we have 295 gaming tables.  We have about 1200 slot machines spread over a three-storey gaming podium of approximately 18,000 square meters.

The Philippine gaming industry, as we know it now, is really starving for quality and this is what we are presenting here. This is a 5-star quality hotel and resort casino with pretty much a target for our local market.  We really plan to primarily design this facility for our local market.  We all know that the foreign rivals in the Philippines as we know stands about two or three years ago and we’re hoping it’s being a 5-minute or 10-minute away from our international airport will be a great addition to our tourism industry, not only from the foreign side but also from the domestic side.  This is a good pit stop for those [qualifiers][?] as we called them coming from different regions of the world to do a three-four day stop in Manila before they go to their own provinces in the islands, in Cebu or our famous beaches in Boracay or our ecotourism spots in Palawan.

This is part of our gaming area, pretty much the main gaming area. Our sector for VIP gaming side is presented here from the reception side.  VIP suite gaming portion.  Initially, we have two sets of rooms right now.  We’re just showing you the ‘orange rooms’ as we call it.  This is pretty much our regular king-sized bedroom.  Bathrooms are typically in glass nowadays.  A two-bed suites as was previewed in this picture.  We have the wet bar [?]. and the living room showing your view towards the Manila Bay which probably has the best sunsets shown in any part of the world.  Our suite rooms, bedrooms.  These are the bathroom for the two and three-bed suites.  Of course, the main living room and the wet bar for our three-bed suites.  We saw a little bit of glimpse of the dining area for our three-bed suites.  This was taken from Manila Bay towards the main boulevard which is a ride away 50 meters wide and is actually done by now.  It’s ready.  We are going to partially use it as our construction road to build this project by early next year.  And I reserve a lot of questions from this later on.  So, Fred?  Thank you.

25:25                     Fredric:  Well, Don has presented a future project that is well along its way in implementation.  Our next speaker is Thuy Trinh who operates Resorts World in Manila which is a casino, a hotel, mini-integrated resort that is up and running.  Thuy Trinh is a veteran gaming executive.  I guess we met here in Macau, you know, several years ago, and we meet here again here in Macau but to discuss the Philippines.  So Thuy Trinh?

26:09                     Thuy Trinh:  Thank you Fred for those very kind words.  Good afternoon ladies and gentlemen.  What I’ve got here are some slides to introduce to you a very exciting project that I’m fortunate enough to be part of.  It’s work in progress, but at least I would give you an introduction into it and then we can always fill some questions afterwards.  Resorts World Manila was opened in August 28th, so it’s about 9 months in operation at the moment.  The company, it belongs to the company called Travellers International, and Travellers is a partnership between Alliance Global which is our Filipino partner and Genting Hong Kong, which is part of the Genting Group.  Alliance Global (AGI) is a large developer, a real estate developer plus fast food restaurants and also beverage — a brewery.  I think it’s about the biggest producer of brandy in the world by volume.  Genting is probably no stranger to you.  It’s a global group.  Genting Hong Kong used to be called Star Cruises but we went through an exercise of changing the name, rebranding it.  So we got previously Genting International which is now Genting Singapore.  We have Genting Berhad which is still is Genting Berhad, just another company if you will.  Genting Malaysia and then now, Genting Hong Kong.  So that’s the two partnerships that own Resorts World Manila.  That’s part of it from a bird’s-eye view.  We’ve got a golf course next to it.  It used to belong to the Air Force.  It’s Air Force land.  We’ve got about — the development itself is about roughly 8 hectares of it, but we’ve got about 25 hectares of it all.  That’s another view, just to show what we’ve got at the moment.  And at nighttime, you could see the front and the middle – that’s the main entrance that goes through the casino.  And then next to it, you got the Maxims Hotel and on the other side, you got the shopping mall and theater and all that.  We will come to it in a minute.  So inside this, one of our main features inside the casino is a central band and of course, we’ve got a stage on it.  That’s very much the focal point of entertainment and energy as you walked into it.  The one thing with the Philippines and with the Filipino people, entertainment is capital.  It’s a very happy country and they love to party all the time, so where the music and everything else, it’s quite great.  So we do put acts onto it, you know, we just have the variety of things, you know, in the way of Bella Rouge dancers and the acrobats and little of everything else that goes on for about 12-14 hours a day.  Again, we’re building a theater that would seat about 1500 and then we’ll do production shows and anything else to come.  Just some of the artists that we’ve brought in at the moment — excuse me.  Then we’ll give you an idea of some of the hotel.  Now, the first one that was constructed was the Marriott Hotel.  While it’s run by Marriott, but this is before the partnership was confirmed.  Then, the Marriott Hotel is on the left there.  Then what you see in the front is a [00:30:30] that joins through a golf course.  The one on the right is in progress at the moment.  It should open by the end of the first quarter.  It’s when built, there should be about 800 rooms, it’s mostly for packages, so it’s probably about 31/2 – 4 star hotel.  On top of that, on the next slide here, yeah it does.  We’ve got Maxims.  Maxims is part of the brand that we also see the Genting Group pushing.  In another place, it’s called Crockford, but a 172-suites and it’s very much an individualized butler service.  You got a choice.  You can either press a button or you can open the door and there’s a human version just outside the door who will look after everything that you need.

We started off with about four restaurants and we’ve got by the end — by the time that we complete everything; we should have about 11 restaurants on the casino side. There are about three restaurants in the Marriott and also on the mall’s side when it’s completed, it probably would have another 20 restaurants and food outlets.  Again, that’s another good thing about the Philippines, you know, people do like going out and dine and so we try to please that as much as we can.  And then there would be a shopping mall, that should open in about two months’ time.  There are two lots actually.  You’ve got a high end mall with all the names that you would normally associated with high-end casinos, you know, all your Bulgaria and Ferragamo and Cartier and all that.  And then you also got like a middle market, shopping mall, and then it also would have some cinemas in it as well.

Now, there you go. With gaming and we’ve got for the potential for 300 tables and about 1200 slots and we could also increase the slots.  We’ve had some space into it, but when I said the potential of 300 is because at the moment we have finished with two floors of gaming.  It’s got three floors of gaming.  The total area is probably about 300 thousand square foot, and the third floor is we’re working at the moment.  It’s is really an exciting floor.  I think I’ve got a couple of slides to show it to you.  There you go.  That’s amenities.  Ooopps.  Yes, the third floor.  We will call it the Crockford’s Club.  It’ll be very much a lifestyle.  It’s a club and it’s by invitation only, and even though it’s –. If I can summarize, it’ll be more like a club with a casino in it, not a casino with a club.  So the lifestyle in it and this is all of what you would like to be entertained with.  You got your cigar bar, your single malt bar, your wine collection.  There’s wine tasting.  About four or five food outlets, two private function rooms.  You can have a private entertainment, a private … some — a good artist, you know, playing to about 200 or 300 people –yeah, so it’s very flexible and that hopefully should be completed in about three months’ time.  We’ll just give some visuals for you.  This is the entrance as you walk in and then you can see, you know, and pick up your cigar bar, single malt bar on both sides.  Well, that’s it.  Just a little introduction to what we do and there’s still some more to come with the Manila Bay project as well.  Thank you.

35:04                     Fredric Gushin:  Okay.  Our final speaker before we get to the questions is Rafael Butch Francisco who has been serving as president and chief operating officer of PAGCOR which is you all are familiar with operates and regulates the casinos in the Philippines.

35:35                     Rafael Butch Francisco:  Thank you very much.  I’m so happy that two of our investors located in what we call the Entertainment City are here with me this afternoon.  They are, of course, Mr. Trinh of Travellers International and Mr. Almeda of Bloomberry Investments.  And why the Philippines — why not?  The first quarter of 2010, in fact, the economy grew 7.3%.  I know it’s not when compared to what Macau has done for the first quarter is more than 30%.  The JP Morgan Chase is predicting for the full 2010, the Philippine GDP will reach 6.8%.  More numbers.  The PAGCOR casinos from January through April 2010 revenues from the tables and slots generated 191 million US dollars.  The licensed casinos, 192 million dollars, that includes the revenues generated from Mr Trinh Travellers International, totaling 383 million US dollars.  The outlook is 1.1 billion US dollars for the full 2010.

Do you recall that PricewaterhouseCoopers … it disappeared.  Alright, it’s here …  Philippines — I think the years are missing, but anyway they’re predicting for 2010, 801 million US dollars – you see the figure 801.  Actually, we are going to be receiving that by the end of the year which, I mentioned, 1.1 billion US dollars.  We are predicting that the billion dollar revenues should be achieved yet next year when the Integrated Resort opens.  So it seems Mr. Trinh’s Integrated Resort open last year, so we have exceeded the target projected by PricewaterhouseCoopers.

Now, we are– these figures are from figures from pre-financial crisis. Yet, we are confident that these figures would remain the same, averaging 17.9% in rate of return.  Now, the Bagong Nayon Pilipino Entertainment City is right here in Manila, across Manila Bay, and –.  Actually, there are four integrated resorts.  We have Mr. Trinh’s company which partially opened across NAIA 3.  We are expecting Bloomberry Investments to start construction by the first quarter of 2011 and complete the phase 1 development by the end of 2012.  We also have Aruze Corporation, the major partner of Wynn Resorts to begin their construction of their Integrated Resort by the first quarter of 2011 as well as the another resort by the SM Investments Group.  That’s it about the Philippines, and thank you very much.

39:17:                    Fredric Gushin:  I wanted to open the floor to any questions or relevant issues that have been discussed here, a lot of potential opportunities, a lot of the development and a lot of opportunities in the Philippines and Cambodia’s changing, and we really haven’t discussed Malaysia, but we might ask Thuy Trinh to comment on that as we go along, but does anybody have a question.  If not, you know, I can start the questioning and please feel to chime in at any time.  Yeah, obviously, the Philippines is one of the centers of gaming activity after Macau and Singapore.  It’s had a longstanding industry in the Philippines which is now expanding into the private sector.  So I guess, the first question I would like to ask, which is from a planning perspective on the part of PAGCOR, how do you see the casinos competing with the Integrated Resorts in Macau and Singapore.

40:18                     Donato Almeda:  Test.  Okay.  We have actually developed the plan for the Philippines to serve as alternative destination.  We know that we can’t compete directly head on with Macau because they have the China market and of course, Singapore, considering that they have maintained a tourist arrivals that average of eight — I guess eight million tourists a year where the Philippines takes about 3.5 million last year.  So the main attraction that the Philippines has to offer is that, you know, “whatever happens outside the Philippines stays outside”.  The Philippines is unique.  You could say that because of the population growth, 70% of our revenues are coming from locals, 30% from tourists.  So that’s what I can say about why investors continue to have their confidence in building casinos in the Philippines.

41:26                     Fredric Gushin:  Thank you.  Let me just ask a followup question to Butch and then we’ll proceed.  Do you see PAGCOR’s mission changing with the new administration that’s going to take office in the Philippines at the end of the month, and how do you see the changes or do you see change taking place?

41:44                     Rafael Butch Francisco:  I would expect to have some changes in terms of more probably participation and you know the — our organization PAGCOR remains 100% owned by the Phlippine government, and let’s say from congress itself to privatized PAGCOR.  And with the new administration, the new president, soon to be proclaimed, we are foreseeing among the presidentiables that run last May election is the cleanest in the terms of leaving the business of casinos to the private sector.  So we are expecting the government to play more as a surrogatory body rather than operating its own casinos.

42:36                     Fredric Gushin:  Okay.  Then that, I mean, we might made some news here today because, you know, this is a major issue facing developers and PAGCOR’s continuing role in something we, you know, talked about many years going back to 1985.  So it’s very, very interesting to see how these things have evolved.  From the private sector, Don and Thuy Trinh, how do you see the Philippine market having heard what, you know, of Butch said?  How do you see the Philippine market growing in that regard?  Why don’t we start with Thu Trinh.

43:08                     Thuy Trinh:  Yes.  With — to me, this is a very fast expanding market if you will having since we opened, outside the market has expanded by about 50% to be conservative, or more.  That’s also very fast growing middle class.  The slot market is very strong as well.  So, I mean, that the pie has expanded very rapidly.

43:42                     Fredric Gushin:  And Don from your perspective as someone developing a major project in the Philippines, how do you see the same issue?

43:50                     Donato Almeda:  It’s basically, you know, in general, it’s within the line of what Butch and Trinh pretty much explained.  We have a very strong domestic market and from what PAGCOR has seen 70/30 and are growing domestic market with the upliftment of our, you know, middle class.  We still see a very big opportunity in our local market alone.  That alone did 30% that’s coming from foreign arrivals which by the way includes our own Filipinos who works from outside the country coming in for their regular country visits, which are of course people who can afford this kind of industry.

44:28                     Fredric Gushin:  Anybody have a question in the audience?  Feel free anytime to ask a question or comment because we’re covering a lot of topics here.  Let me ask Tim a question.  In Cambodia, you know, has Naga world been implicated or impacted by the political turmoil in Thailand or how has that affected your operations there?

44:54                     Tim McNally:  The short answer is no.  We have not been impacted by you know the political turmoil in Thailand, and you know, there’s been strain about some historical temples on the Thai and Cambodian border but that really has not affected us in Naga World.  So much of our business historically when Naga moved from a barge to a land-based casino, we were probably a 90% junket operations principally from Malaysia, Singapore and China.  What’s really changed since 2004-2005 and certainly Thailand and Vietnam were part and continue to be priorities as far as the marketing strategy.  But because of obviously existing restrictions concerning gaming in Vietnam and Thailand, not only have the border casinos continue to obviously have a localized traffic but, whether it’s junket operators or just the increased tourism to the area, I think I mentioned in the presentation – if we in fact 10 years, 12 years, we’re talking what few hundred thousand people visiting Cambodia and the majority of those would have been going to Siem Reap, to the temples.  Now, about 46% of the 2.2 or 2.3 million in this year, I think those numbers will go up significantly, are coming in the Phnom Penh.  We have anywhere from 50 to a 100 tourist buses arriving on the front door in the Naga everyday.  Now, just like any building block type of operation … hosting conferences regarding investment into Cambodia, outside people who want to own property will have a free hold.  Cambodia is a work in progress, and like I mentioned, I can’t give you a gross revenue figure for all those casinos along the Thai-Cambodian border because they are not published yet.  Give Cambodia some time though, like I said, money laundering legislation was passed in 2007, slot parlors were closed, certainly that had a favorable benefit for us.  But Cambodia year by year will continue to progress in the area of, again, oversight regulation, but the instant question about Thai political issues does not really impacting NagaCorp which is really, I think,  something was wrong in the published material – we’re the only casino in Phnom Penh.

47:41                     Fredric Gushin:  Let me just ask a followup question.  I am flabbergasted in our office in Redwood, New Jersey.  We get calls once a month on the potential projects in Cambodia.  The Bangkok office gets calls more frequently than that.  So obviously, there’s interest in Cambodia.  Do you think the market can expand to support new projects or is that just a wishful thinking at this point in time?

48:08                     Tim McNally:  In Cambodia?

48:09                     Fredric Gushin:  In Cambodia.

48:10                     Tim McNally:  Well, there are a number of new projects opening –.  I just met with some people that anticipate the opening of a project in the next few months in the south of the country and you’ll find that the government has authorized development and permits along those border casinos.  Again, if you’re looking at a country that was urgently in need of revenue streams, I think you saw a proliferation and growth over the years, but I think that we’ll have a slow down and quite honestly, NagaCorp is a little bit different in the sense that we haven’t been dependent on totally localized traffic.  We really – over the last three or four years – instead of just being dependent or relying on that junket business.  Like I mentioned, we have our public floor shop here.  We’ve gone from like 36 gaming tables four years ago to a 184 gaming tables.  The facilities have been built out considerably, four VIP floors, and the bottom line is, whether it’s our slot business that was 1.6 percentage of our total revenue three or four years ago, that’s moved to 30% or a 35 million in recent years, and the public gaming floor with — call it local Cambodians with passport who have repatriated back from North America or Australia and elsewhere that are involved in the telecommunications in the major building of the country again.  We have a lot of premium player programs that allow for obviously [way better than] ? those particular programs and the junket operations still a very critical component will still continue to develop business — our China business.  We’ve opened offices in China.  When I say office liaison in terms of exposing Cambodia, exposing tourism.  So, we’re trying to build at least in Phnom Penh a balance both gaming as well as entertainment facility because keep in mind the country really didn’t enjoy the type of facilities whether its convention, restaurants, and nightclubs of the type Naga can offer.  So, a very diversified type of complex.

50:41                     Fredric Gushin:  Any questions?  Yes sir.  I think someone’s coming up with a microphone for you.

50:47                     Male:  We have a question for Mr. McNally.  Explain how the licensing fee works again and why it’s so low.

50:58                     Tim McNally:  The license — I only heard part of the question.  I’m trying —

51:02                     Fredric Gushin:  Explain how the licensing fee works again and why it is so low.

51:08                     Tim McNally:  The again, the government has not imposed a fixed tax, so basically what has happen since really 1994 and 1995 as gaming facilities have been approved whether it’s the border or whether it’s not.  Rather than a uniform type of issuance as far as the licensing fees, my understanding talking to other operators or otherwise that licensing or flat fee that you pay each year is negotiated with the government.  Ours rate now is somewhere in the area a little over 2 million a year with a built-in 12% kick, but it’s a licensing fee rather than a tax.  Our licensing fee will remain in effect till 2018.  At that point, you know, the government may impose a gaming tax for all licensed operators.  You know, in the case of Cambodia, again I think the industry has [about]? greater than the government’s ability to regulate and structure whether its taxes or otherwise.

52:26                     Fredric Gushin:  Thank you.  Any other questions from the audience?  If not, I’ll finish up with a couple– yes?  Question?

52:39                     Kate:  Hi! This is Kate from Dow Jones and The Wall Street Journal.  I was just wondering about how you think gaming revenue performance will be this year in your jurisdictions.  Are you looking at numbers like we’ve seen on Macau?

52:53                     Tim McNally:  Gaming revenue this year?

52:56                     Kate:  Yeah.  I mean are you also recovering from a low base and can you expect to see crazy hot ones like —

53:03                     Tim McNally:  Gross revenue in 2008 was a 193 million.  Not bad for a gaming operation in Cambodia.  Like I said, we’re the only one that have these published figures, so I really can’t give you a good comparison with some of the larger border casinos or otherwise.  I know some of those are healthy operations.  2009, we certainly were impacted by the economic crisis.  We had a fall off in our junket business.  Some of that were self-imposed or to be quite honest with you, because of the– we’re a smaller operator.  We’ve always had a favorable junket commission, anywhere from 1.6 to 1.7.  We did some things to try to curtail or cut cost.  Like any other operators, we had credit issues with junket operators.  We were concerned about our receivables.  So we certainly made a push to grow out of the components of the business whether it was slots, whether it was public floor gaming operation.  We do sell those across, share the benefit with some of the player programs, but junket operations are still a critical component.  We are still very much involved in those types of relationships.  We’ve taken a pretty conservative policy to manage our gaming risk, but it is coming back.  Our overall revenue in 2010, I’m not in the position to give you the exact figures, obviously, what it looks like for the first half …  We are optimistic that we’re going to have a good recovery in 2010.

54:37                     Kate:  Could you give any percentages?  Like a 30%, 50%, 70% –?

54:42                     Tim McNally:  Percentages, you know, in terms of growth, is that what you’re asking?

54:45                     Kate:  Yeah, yeah.  Just want to get an idea of how it compares across the other regions in Asia.

54:50                     Tim McNally:  I don’t think I want to throw out a percentage.  All I can tell you is our second quarter has been quite strong, and if we continue to see that type of recovery, our — like I said we would be very optimistic.

55:09                     Kate:  Thank you, and what about the gaming revenue in the Philippines.  What kind of growth are you seeing in 2010?

55:16                     Fredric Gushin:  We’ll try on keeping it that way.

55:17                     Rafael Butch Francisco:  17.9%.

55:19                     Kate:  Oh, okay.  It’s really exact.

55:22                     Fredric Gushin:  No wonder he’s happy.

55:26                     Kate:  And that’s right now?  What’s your full-year projection?

55:31                     Rafael Butch Francisco:  Yeah, for 2010 we are going to reach over $1 billion in terms of gross gaming revenues, and when Bloomberry opens, we could probably double that already.  Conservatively, 17.9% each year.

55:54                     Kate:  And that’ll get us to I billion.

55:57                     Rafael Butch Francisco:  From 1 billion, that’s yeah, starting 2010.  2011, we expect a 17% growth.

56:07                     Kate:  Thank you.

56:09                     Fredric Gushin:  Any other questions?  I see one over here.

56:15                     Female:  Thank you.  I have the questions.  One for Mr. McNally from Cambodia and the other question is from our gaming executives from the Philippines.  First for Mr. McNally.  Do we see an expansion in gaming operations in Cambodia outside of Naga World in the coming months or even may be in the next one or two years and the second question for our Philippine executives is some –.  I understand that a huge chunk of the gaming market in the Philippines come from the slot club operations.  Now with the entry of the Integrated Resorts such as the Resorts World and the establishment of Bloomberry venue, how do you think this will affect the revenues coming from the slot clubs or how do you think will the slot clubs be contributing or complementing the revenues coming from the IRs in the Philippines?

57:15                     Tim McNally:  Okay.  I think two full questions.  One had to do with whether or not Naga has expansion plans within Cambodia or other region.  Is that correct?

57:26:                    Female:  That could be one.  If each —

57:28                     Tim McNally:  The second question was the expansion of our slot operation.

57:33                     Female:  I’m sorry.  That’s meant for our executives from the Philippines.  The second question is for the gam executives from the Philippines.  The first question is for you Mr. McNally.  Do we see — in the coming years, do we see an expansion of gaming operations outside of Naga World.  Like if there are other foreign operators coming in to Cambodia, although we see Naga World expanding outside of the Phnom Penh perhaps, as you mentioned, in the southern part of Cambodia.

58:04                     Tim McNally:  Let me answer that question – as far as … the last half a dozen years really has been a focus on building Naga World in Phnom Penh.  Having said that, we’re certainly looking and monitoring opportunities within Cambodia.  What I mean by that – within a 200-kilometer radius, we can open 10 casinos if the market will bear.  We have a seven day – seven night operation and like I said, if the market conditions dictate, we would certainly seize those opportunities.  Similarly, we are in a position to work with the government whether it’s sub concession arrangements or otherwise.  I mentioned a regulatory environment that is really just developing, so that’s another component that we consider as far as the maturity of that gaming environment in terms of structure or whether down the line, how many license would be issued, the criteria and so forth, but we’re in a position where we can expand not only within the country but as you very much aware whether it’s Vietnam or Thailand, there’re various existing restrictions.  The absence of legislation, a lack of clarity in the jurisdiction of Vietnam.  Should those events occur, NagaCorp would be very much poised, obviously, having the experience in that part of the world IndoChina to move into other jurisdictions.  But as to specific announcements or plans on the drawing board, not yet.

59:47                     Fredric Gushin:  The second part of [00:59:48]

59:52                     Donato Almeda:  If I understand it correctly, you are asking whether the slot market is expanding.  Is that what it is?

01:00:00               Female:  Exactly.

01:00:01               Donato Almeda:  So we can get to the fact.

01:00:01               Female:  Yes.

01:00:02               Donato Almeda:  Thank you.

01:00:03               Female:  Is the overall slot club operations of PAGCOR …  I just like to understand how the Slot Club market of PAGCOR in the Philippines will be affected with the entry of the operations of Integrated Resorts in the country.

01:00:25               Donato Almeda:  The likelihood of the Slot Club will be affected.  I really don’t think so.  Like I mentioned earlier, I think the market is expanding.  So what other awareness is and what other we can do.  We’ll just increase the size of the pie if you will.  If I can fly people from other countries on the slot junket, I’ll do that, but really the slot market to me and the Philippines are more — what’s the word — US-centric if you will.. So the slot is an easy entry, a low entry, so that it does getting a lot of popularity.  But speaking for our group, we also balance that by getting a lot of international visitors and these people play tables, table games.

01:01:23               Fredric Gushin: [01:01:23] anything.

01:00:25               Donato Almeda:  I can relate to that question because we — one of us at Bloomberry offer a couple of, you know, slots in our cases.  We call it the VIP arcade.  We were not affected.  We were a little bit far from where we call it the entertainment city.  There’s any I guess transfer of players, it probably would then affected those that are near the entertainment city areas which are really PACGOR branches, and knowing the market now, you know, the local market starved for quality and pretty much Resorts World has raised that bar up from what, you know, PAGCOR has been, you know, with reference to Butch.  What PAGCOR has offered the past few years — I mean and of course, we’re raising a lot higher than that, so hopefully the quality aspect, once there, will regenerate a lot bigger market than what it is now.  The neighborhood clubs will still be there as we see it here in Macau.

01:02:23               Donato Almeda:  The Moca clubs, you know.  Pretty much those will primarily be the, I guess, the analogy to our VIP arcade or slot clubs in the Philippines.  Of course, the provincial ones would probably expanding too because they don’t have those kind of resort developments that we would have in Manila.

01:02:41               Tim McNally:  I think I would add like in a country like Cambodia.  Again, a maturing regulatory structure is that we were dependent 90% on junket operations three or four years ago and certainly in part that was because our facility were still being built. But today, you know, we’ve gone from a 107 slot machines, we have a 1000 plus in place.  We’ve gone from 1.2 of our revenue to about 30%, 34 to 35 million last year and we think we will do considerably better.  So, I have to confess.  Even that surprised us.  Some of it, we were certainly fortuitous and we’re the beneficiary of a change in regulation that drove a lot of people our way.  But I wouldn’t dismiss the slot market in the sense that, you know, even though the table games and Baccarat’s game still is the number one priority and focus as far as real gamers.  That mass market has surprised us as far as the level of interest and the level of activities when you look at these tour buses coming in from Vietnam and other parts of, you know, the country.

01:03:47               Fredric Gushin:  Okay.  I think we’ve just about used up our allotment of time.  I want to thank our speakers and panelists for the session today.



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