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Macau Macro Analysis & Melco Crown Ente rtainme nt Report (PRE DRAFT 2) By, Donald Shekels IHS.Research@mail.

ru TIES TO SINO-FOREST

All images on this Page are taken from Melcos Financials since 2006. Sec.gov.

Link to Structures on Last Page.

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Pre-Draft: Macau The Next Iceland?


Melco Crown Entertainment Analysis, (Enron like Structure) Stanley Ho Connects to Sino-Forest

By Donald Shekels
IHS.Reasearch@Mail.Ru

It is the opinion of the author that the gambling revenue reported in Macau is vastly inflated. The first part of this paper submits facts for the reader to make his or her own opinion. The second part of this paper covers Stanley Ho (runs/owns/controls most of Macau), his Son Lawrence Ho (CEO of Melco Crown), and concerns about revenue and financial position of 6 billion market cap, publically listed, Melco Crown Entertainment Ltd (MPEL). The final part of this paper will look into the company structure and cite reasons for why I suspect they could be merging CDO type entities onto the balancesheet, similaries/links between Melco, Sino-Forest, Grande Holdings, and Gerova Financial. I will close with my theory for how this was supposed to end (Hint: Lightbridge Philp Falcone). Disclaimer: I may be short. I am not an investment professoinal.

Could Melco's Projects actually be CDOs?

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Part 1: The gambling revenue reported in Macau doesn't add up. Here is the gross numbers according to the Gaming Inspection and Coordination Bureau Macao Sar. These numbers jive with reported revenue from the big casinos in Macau.
(Note this is monthly gross and NOT an aggregate figure.)

*HKD=1.03MOP (Unit:MOP million*)


MONTHLY GROSS REVENUE

30,000

25,000

20,000

15,000

10,000

5,000

0
Ja nAp 0 9 r09 Ju lO 09 ct -0 Ja 9 n1 Ap 0 r10 Ju l-1 O 0 ct -1 Ja 0 n1 Ap 1 r11 Ju l-1 O 1 ct -1 Ja 1 nAp 1 2 r12

http://www.dsec.gov.mo/TimeSeriesDatabase.aspx?KeyIndicatorID=15

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So, per below, Macau Casinos are doing in 1 month what the entire Las Vegas Strip does in an entire year? 3.3B? Macau Casino Revenue Growth Slows to 7.3%, Meets Estimates
http://bloomberg.com/news/2012-06-01/macau -casino-revenue-rises-7-3-meeting-analysts-estimates.html

Compare above, with Yearly Vegas Figures


(Revenue is in Blue) Las Vegas Visitor Statistics 40000000 Game Rev (Thousands) $3,500,000 $3,300,000

38000000
36000000 34000000 32000000

$3,100,000 $2,900,000 $2,700,000 $2,500,000 $2,300,000 $2,100,000 $1,900,000 $1,700,000

30000000
28000000

$1,500,000

5 |P a ge The correlation between Las Vegas Revenue and the SP is strong, however Macau compared to the Heng Seng shows quite a divergence (compare with 1 st 2 charts)
Heng Seng S&P

33000

1700 1500 1300

28000

23000
1100 18000 900 13000 700 500

8000

12/1/1995

12/1/1998

12/1/2001

12/1/2004

12/1/2007

12/1/2010

9/1/1996

6/1/1997

3/1/1998

9/1/1999

6/1/2000

3/1/2001

9/1/2002

6/1/2003

3/1/2004

9/1/2005

6/1/2006

3/1/2007

9/1/2008

6/1/2009

3/1/2010

9/1/2011

Macau International Airport holds travel statistics that run counter to claims made by the Government and Casinos regarding revenue. Being ironic due to the fact two of Stanley Ho's (Discussed shortly) daughters are on the executive committee of the Air Port.

http://www.macau-airport.com/site/php/en/statistic_cargo.php

http://www.macau-airport.com/site/php/en/statistic_passengers.php

6/1/2012

6 |P a ge There are four ways to Macau; plane, helicopter, ferry, and bus (Macau claims 50% of travelers take bus from mainland China). We see from the article below, the airline is having money problemswhich conform to what flight statistics above show. Macau International Airport Co Ltd Needs a Bailout 6-1-2012
http://www.macaubusiness.com/news/come-fly-with-me/16563/

The Ferry service Cotai Jet, (1 of 3) is shut down for maintenance. What type of Fe rry Business would do maintenance on ALL 14 of its ships, at the same time?

http://www.cotaijet.co m.mo/

If money is just pouring in, why do Hong Kong banks have growing liability to Macau?
HONG KONG GEOGRAPHICAL BREAKDOWN OF NET EXTERNAL LIABILITIES (Macau SAR)

120

100

80

60

40

20

0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

http://www.hkma.gov.hk/eng/publications-and-research/annual-report/

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IMF and World bank data is rathe r limited for Macau however data measuring education enrollment is available and it runs counter to what one would expect during "fat" times. Compared to Hong Kong.
School enrollment, primary (% gross)
106

104

102

100

MACAU HONG KONG

98

96

94

92 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

http://data.worldbank.org/indicator/SE.PRM.ENRR/countries/-HK-IS?display=graph

Government increases tax. Tax Vacant Flats in Macau: New tobacco tax to help smokers quit 2-7-2012 12-20-2011
http://www.macaudailytimes.com.mo/macau/33515-Workers-union-wants-duty-vacant-flats.html

http://www.macaudailytimes.com.mo/macau/32493-New-tobacco-tax-help-smokers-quit.html

Declining Energy Consumption at Venetian Macao.

http://www.sandschinaltd.com/export/sites/default/en/Investor_Information/2012/04/Annual_Report/E_AnnualReport.p

8 |P a ge A little background on the gambling in Macau. Up until 2002 it was a monopoly controlled by alleged organized crime connected Stanley Ho. Long story short, it and the city of Macau are still controlled by this dude Stanley Ho. Having done extensive research into the Ho family network, I feel confident that wikipedia describes him well. Stanley Ho, was also named by the Canadian Government, citing the Manila Standard newspaper, as having a link to the Kung Lok Triad (Chinese mafia) and as being linked to 'several illegal activities'[8] during the period 19992002. Ho's ties to Chinese organized crime have also been reported by the New Jersey Division of Gaming Enforcement, citing a U.S. Senate committee and several government agencies, when the state investigated his ties to American casino operator MGM Mirage http://en.wikipedia.org/wiki/Pansy_Ho Stanley Hos family is huge: hes had 4 different wives and 17 kids. Stanley himself is the 9th of 13 children. Hos influence is immense; through wives, children, and business partners/associates he controls most of Macau. The sheer size of his family and use of shell/holding companies make drawing connections especially difficult, but here are a few important examples (by no means is this all) Stanleys ex wife Angela Leong (aka Leong On Kei) is a Member of the Legislative Assembly of Macau, and owns stakes in Stanley controlled entities. Daughter Pansy (aka Ho Chiu King, Pansy Catiling) controls 50% MGM Macau, Director of STDM (which owns part of SJM which controls 20 of cities 33 casinos), Vice Chairman of Macau international Airport Co Ltd. Director Air Macau. Stanleys son Lawrence is CEO of Melco Crown Stanleys daughter Daisy director of STDM, and Executive director of Airport. Edmond Ho (No family relation), Executive of Macau, has/had ties to a company that invested in one of Stanleys controlled companies. http://www.macaubusiness.com/news/ties-to-the-land2/5113/

George Ho was the CFO of Sino-Forest (Alleged fraud exposed by Muddy Waters)- I believe is the cousin of Stanley. Allen Chan- CEO of Sino-Forest- suggested to be Stanleys Hos apprentice years ago (I cannot find conformation or any information on this however) Stanleys daughter Angela Ho, 10% owner, CEO, and Director of Asia Special Situation Acquisition (Now called Gerova Financial). Angelas husband Peter Kjaer was a director. Andrew Tse, I believe is Stanleys Nephew, was VP. Ho Cap ital Management was 10% owner of Asia Special Situation Acquisition Corp (Gerova Financial Group) Suggested to be a Ponzi scheme. Gerova Financial Group Suggested Reading:
http://www.zerohedge.com/art icle/allegations -shell-game-fraud-involv ing-gerova-fiancial-g roup-gfc

Suggested Reading Grande/Eme rson, http://www.nj.com/business/index.ssf/2008/08/emerson_faces_fleeing_board_in_1.html

9 |P a ge Another link to Sino-Forest (Other than George Ho): Stanley Ho is Founding Chairman of Grande Holdings Limited. At one time Lawrence Ho was Shareholder in Grande. Grande and related entities owned 6.5M shares in Omnicorp Ltd, on 1-4-2003 (10% of issued share capital at time). Per 6-23-2010 Omnicorp Ltd filing, Sino-Forest and related subsidiaries owned 89 percent of existing convertible bonds. They would own 40.06 percent of company per this filing. As of 9/30/2910 Sino-Forest is shown to own Omnicorp Ltd, via Sino-Capital Global Inc. On 12-17-2010; Omnicorp Limited changed its name to Greenheart Group Limited. For more information on Omnicorp Sino-Forest dealings, I highly suggest you read Muddy Waters Sino Forest Report. www.muddywatersresearch.com For Grande Filings (See Hkexnews.com, Search Disclosure of interests or Advanced Search for information below) I find the use of these companies like Emerson interesting. While reading about Melcos transactions; the complexity; objective, etc, Im often drawing comparisons to how they arranged and warehoused CDOs. Part X: Melco I think Melco is massively inflating their gambling revenuethe fact Melco has been unable to produce even a meager profit on their inflated numbers speaks volumes about the company, management, and their future.

Here is a list of Melcos Subsidiaries, highlighted are those that are located in the British Virgin Islands or Caymans (23 of 56 subsidiaries). I find them a bit suspicious especially when considering the information in the Grande and Gerova links I posted above (not to mention the Sino-Forest web of companies). It is my understanding, being in Hong Kong, Incorporated in the Caymans, and conducting business in Macau, provides no tax benefit to have these entities in the British Virgin Islands and Caymans. What purpose do these serve?

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Inte resting disclosure regarding seeking judgments obtained against Company/Manage ment.

11 | P a g e I suggest you read pages 76-84 (MAJ OR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS) and ask yourself if these are the type of dealings that are either appropriate or in the best interest of the company.
http://www.sec.gov/Archives/edgar/data/1381640/000114554908000637/h02015e20vf.ht m# 131

The information at the above link in regards to the self dealing I think is partially responsible for why Melcos casino expenses are the highest relative to casino revenue. (Melco is in Light blue)

Data taken from Sec.gov

Recent Capital Raising: Melco Crown Said to Seek About 2.2 Billion in Bond and Loans. (Bloomberg) June 15 th , 2012 Wynn Macau said to Start Marketing 1.5 Billion Casino Loan (Bloomberg) 5-23-2012 Investment Banks Investor Conferences: Below we see Goldman Sachs, J.P. Morgan, UBS, Deutsche Bank holding a total of 4 investor conferences since March of last year. It looks to me they are trying to find buyers of Macau.

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http://investor.lasvegassands.com/events.cfm

Melco Grossly Overpaid for Casino License according to Forme r Inside r inte rvie wed in the book, Who Wants ot be a Billionaire? The James Packer Story, written by Paul Barry. http://books.google.com/books

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Personal Thoughts: I have tried to remain unbiased and present the facts at hand, so the reader can make his/her own determination about what it all means. Below I s hift to a more opinionate d position; I stress that everything contained below is mere speculation and opinion. I consider the possibility that at least one (possibly more) of Melcos subsidiaries could be acting as a holding company for certain distressed financial assets; student loans, MBS, ABS, and potentially the other side of certain hedge funds trades. Let me explain. Going back to Gerova Financial, Gerova was a company which invested in largely illiquid financial assets through interests in hedge funds, funds of funds, reinsurance companies, Bermudan and BVI registered entities. The similarities between Gerova Financial Group and Melco extend beyond that of Stanley Hos offspring being involved in both, specifically how entities/eventual subsidiaries are initially capitalized, bank credit facilities, triangular-deals, use of third-party deal arrangers, acquisition of assets using stock, and the merging of entities onto the balance sheet and consenting to accept its liabilities. As stated, I dont believe the revenue numbers claimed by Melco. There is too much M&A and credit offered via the banks for there not to be something bigger going on. I suspect Melco could be using the Gerova business model while claiming otherwise. I suspect from the start, what was to happen in Macau was well understood among the connected few. First it would play host to bad debt from 2007, then they would artificially inflate the value of host companies, leverage up and saddle them up even more; anything from student loan debt to synthetic CDOs comprised of the other side of short China hedge fund bets. Government officials were bribed for land and gambling concessions, and they play along by lying to the world. Stanley Ho & Co helps arrange the deals; shuffling, mixing and matching crap with crap and after enough cycles suddenly its worth billions. The structured finance and investment banking crew eventually grow anxious for carnage, and pull the plug on the house of cards. A good scam isnt about taking the money, its about doing it in a way that the mark thinks he knows what happened when in fact he hasnt a clue. There is a saying; Before the scam, you have the dream and they have the money, while afterwards, you have the money and they have the dream. So how does this relate to Macau? Well it is my opinion that the wheel is already in motion. The concession agreements between Macau and the Casinos are incredibly subjective, and at the mercy of the Government. Improper payments for the concession, dealings with unfit individuals, wrong doing of an associate, any number of clauses and they null your concession and confiscate your property.

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But the true genius is that this was the plan from the beginning; with the stroke of a pen the companys assets are gone, it falls into default, and the equity is wiped out. All the right people win, all the wrong people lose, and the good people never knew what hit them. Look at Philp Falcone and his Lightbridge Masterpiece, no one quested what the hell that tangled mess of subsidiaries were, instead it was the governments fault. Perfect.

Credit Facility similar arrangement to CDO Arrangers


The transaction involving City of Dreams project, where the credit facility of 1.75B was drawn almost entirely down, and then partially repaid though issuance of initial Notes of 444.1M, is a transaction quite similar to how CDOs were formed in 07 (where the bank initially loans the arranger money for its construction, and is paid back when the CDO issues its notes.)

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Global Macro Hedge Fund Manger, CLO Manager, and Distressed Investment Fund playing part in Studio City. Studio CityBasically what I gather from the slide below is that Silverpoint Capital, Oaktree Capital Management, and eSun Holdings were involved in the development of Studio City, despite it not being clear as to what was developed or why eSun Holdings received $200,000,000 from Melco. Whats unusual: Silver Point Capital is a company that focuses on distressed debt and is one of the top CLO (collateralized loan obligation) managers according to Creditiflux. Oaktree raised a $11B distressed fund in May of 2008, thus not short of distressed debt. John Burbank of Passport Capital (fund that shorted housing) had 28 percent of issued capital in eSun back in 2008. What business could these three possibly have in the Development of Studio City, (defined 2nd paragraph below)?

16 | P a g e The Studio City Project capital development costs are not to be bared by the company, which I find odd, however it does keep with the the me the way this company has evolved and grown through joint ventures then an eventual acquisition of re maining shares. Melcos looking to market 2 billion in bonds, I suspect they will use the capital to acquire sole owners hip in this project, whatever it is exactly.

Full disclosuremajority shareholders in both owne rship and voting rights, may have different interests than you.

Concentration of Shares and Control by the Ho Family, convertible loan notes may be converted.

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Letter to CEO Lawre nce Ho from SEC, in regards to disclosed liquidity and cash flow.

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Random exerts from Melcos Fillings:


Accounts Receivables = Gambling Debts

What is the recovery rate of unsecured gambling debt? Melco has $390 million worth. (Id be shocked if it was 15%.)

Gambling Debt not Enforceable in Court, Gambling Debts.

Events of default: defined and implications.

If subsidiary we re to default TERMS IN WHICH SUBCONCESSION COULD BE TERMINATED. Insolvency, Fraudulent Activity, or operation which does not fall within the busines s scope of the subconcession. Im curious, if Melco were in fact dealing in CDOs, would that be grounds for termination?

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Event of Default could trigge r imme diate repayment of all debt

Change in control of company requires repayment of MCE Finance notes issued, failure to do so constitutes a Event of Default.

Melcos capital structure needs to be preapproved by Macau Gaming and gove rnme nt Authorities.

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Restrictive Covenants of Credit Facility

It could be penalized for the behavior of other entities for which it has dealings with. Steven Wynn is being accused of improper payments to government officials in Macau, by his forme r partner Kazuo Okada, (Melco received its sub-concession from Wynn).

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Random Thoughts: Name Choices: We've seen in recent history a level of pride or significance in the naming of certain entities. For example Enrons "death star" trade and a few others. Well here is something that seems to have missed a lot of attention, Acabus the Goldman Sachs CDO that shit the bedDo you know what Acabus means in Hebrew? Dust. So could the significance of Lawrence Hos entity Better Joy Overseas Ltd, be titled after what he plans to do after this all falls apart? Color Changing Cards and those in the Know? For any of you Anthony Bourdain fans, I highly suggest you YouTube the Anthony Bourdain Macau. Of especial interest is the dinner with the two guys and one woman, and the Casino scene after. 90% of revenue in Macau is supposed to be Baccarat. Listen for the part where they talk about how Macananese and Chine se nationals only, are allowed to bend, rub, smash, their cards for good luck. Huh? Now Google color changing cards.

CasinoLeaks-Macau: I highly recommend you check out CasinoLeaks-Macau for an inside scoop on Casino Operators, casino debt collectors, and the ugly side of Macau. If gambling business was doing so much volume, why not run a strictly cash business and stop extending credit? The Chinese mafias involvement in casino debt collection is well documented here thanks to casinoleaks. http://casinoleaks- macau.com/index.htm

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Excellent Article:

Chinese Data Mask Depth of Slowdown, Executives Say


By KEITH BRADSHER Published: June 22, 2012 http://www.nytimes.com/2012/06/23/business/global/chinese-data-said-to-bemanipulated-understating- its-slowdown.html?pagewanted=all

TO BE CONT: WORK IN PROGRESS: For a look at Melcos different companies structures, visit
The Many Company Structures of Melco

Check this site for my newest updates. http://www.scribd.com/Russian_Research/shelf Feel free to contact me with questions or comments. Interested in consulting opportunities.

Donald Shekels ihs.research@mail.ru