The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A $300 million agreement to resolve Baha Mar’s woes was sunk when the warring parties were unable to agree “the devil in the details”, Tribune Business was told yesterday.

Well-placed Baha Mar and Government sources confirmed the existence of a framework agreement that would have involved all parties contributing multi-million dollar sums to ensure the $3.5 billion project’s completion and opening.

Subject to a quantity surveyor verifying that $300 million was the sum required to complete Baha Mar, its main debt financier, the China Export-Import Bank, had agreed to contribute $150 million- 50 per cent of the sum required.

The $150 million balance was to be split evenly between China Construction America, the project’s contractor, and Baha Mar’s developers, the Lyford Cay-based Izmirlian family.

Both would have kicked-in $75 million, or 25 per cent each, with Sarkis Izmirlian, Baha Mar’s chairman and chief executive, also providing further security via a personal guarantee.

This was the deal Perry Christie thought he was on the verge of sealing when he announced in Parliament, during the wrap-up to the Budget debate, that he had received “good news” on Baha Mar. Subsequent events were to prove otherwise.

Tribune Business received conflicting versions of what caused this agreement to break down, and Baha Mar to ultimately file for Chapter 11 bankruptcy protection, from both the developer’s and government side yesterday.

Speaking on condition of anonymity because they were not authorised to speak to the media, a source familiar with Baha Mar’s position said the developer failed to reach agreement with its Chinese partner on the details that would underwrite the financial contributions agreement.

They revealed that Baha Mar had still been unable to obtain a completion date from China Construction America, one of its key demands, and thus felt it was “going around in circles” once again.

With Baha Mar’s cash set to run out by the end of last week, the source said Mr Izmirlian was left with little choice but to seek bankruptcy protection in the Delaware Court.

Otherwise, he was exposed to the China Export-Import Bank foreclosing on its mortgage security and/or appointing a receiver, ousting him from a project in which his family has invested $850-$900 million in equity.

However, a highly-placed government official told Tribune Business that only Mr Izmirlian’s personal signature on the guarantee was required to complete the agreement.

Describing the guarantee as “inconsequential” when set against the importance and costs associated with Baha Mar’s completion, the source said the Government was taken aback when informed that Mr Izmirlian had filed for Chapter 11 protection.

Baha Mar, meanwhile, yesterday told Tribune Business that informing the Government of its Chapter 11 filing plans would have been “fatal” to its interests.

This newspaper understands the developer feared that, if it informed the Christie administration of its intentions in advance, the latter’s reaction would have been to panic and immediately inform the Chinese – the last people it would want to know.

“Notification of the Chapter 11 to outside parties, including the Government, simply was neither practical nor appropriate so that the interests of Baha Mar were not put at further, if not fatal, risk,” Baha Mar said, hitting out at “the posturing” since its move last Monday.

Meanwhile, explaining why the ‘$300 million deal’ fell apart, a Baha Mar-connected source reiterated the developer’s position that its Chinese partners had failed to seriously engage over, and negotiate, the key underlying terms.

“In all of these things, the devil is in the detail,” the source told Tribune Business. “Once the general agreement was done, you’re back negotiating with someone reluctant to come to the table.

“It was a painful process. They’re [the China Export-Import Bank and China Construction America] not the easiest people to deal with.

“One of the conditions was that the construction company comes up with a date for completion. That was not forthcoming. In the details of the agreement, the bank and Baha Mar wanted the date to complete. It was really going around in circles.”

The source added: “Yes, there was an agreement, but the devil is in the details and they weren’t able to conclude it. The Government can’t say they had this agreement, and everything was rosy.

“It was a commercial agreement with details that needed to be hashed out by the parties. While some of the parties were willing to negotiate in earnest, some were not. There was a general consensus, but you’ve got to hash it out.”

With Baha Mar “burning through” millions of dollars per week, and no cash flow or agreement with the Chinese in sight, Mr Izmirlian moved to protect his family’s and the project’s interests through the Chapter 11 filing.

The source then added: “The fundamental question now is: Who does the Government want to run this project? Sarkis Izmirlian, or an agency of the Chinese government becoming the second or third largest employer in the Bahamas? What’s the end game?

“Sarkis has put his heart and soul into this, his family’s money into this. This is like Sol Kerzner or Brookfield at Atlantis. Who will run it better? Who puts their passion and soul into this?”

However, the high-placed government official told Tribune Business that the Government and two Chinese entities had only been waiting for Mr Izmirlian to affirm his personal guarantee.

“It was inconsequential given the set of circumstances,” the official said of the guarantee. “That’s why the Prime Minister was so confident, because there was a deal on the table, and the only thing separating them from finalizing the deal was his [Mr Izmirlian’s] sign-off on the guarantee.”

The official said they were unaware that the agreement details between Baha Mar and its Chinese partners had become an issue, especially given that the project was said to be 97 per cent complete and could be finished with two-three months of work.

“In the circumstances where we are now, that has created more uncertainty than the previous set of circumstances,” the source said of the Chapter 11 filing. “The bankruptcy, as it exists now, creates 1,000 times’ more uncertainty then where they were previously.

“I don’t see where the details became the devil in the room. The devil has now left the room. It’s outside in the bankruptcy court.”

Describing the battle between Baha Mar and its Chinese partners as “a game of chess”, the official conceded that the developer’s Chapter 11 filing had raised questions as to whether it had been negotiating in good faith.

“There’s no trust factor,” they said, conceding that it would be “extremely tough” to repair the fractured relationships between Baha Mar, the Government and the Chinese.

It is also possible that Mr Izmirlian perceived the financial agreement as being weighted in favour of the Chinese, rather than himself and his family.

For instance, the China Export-Import Bank’s $150 million contribution is only $38 million higher than the $112 million that was left in Baha Mar’s original $2.4 billion credit facility. Thus the bank has agreed to little more than to release funds it was already holding.

As for China Construction America, its contribution is only $21 million higher than the $54 million that Baha Mar is alleging should be returned to it as a consequence of not completing the project by the March 27, 2015 deadline.

The $75 million contractor payment would also be just 39 per cent of the $192 million in damages that Baha Mar is claiming in the UK High Court against its parent, some $30 million of which is to rectify allegedly faulty work.

With Baha Mar blaming all its woes on its contractor, it is not hard to see how Mr Izmirlian might take the position that he and his family should not be contributing anything more to the construction financing. Given that he has raised the $80 million working capital facility to tide Baha Mar through its Chapter 11 period, it would appear that raising the money is not the issue for him.

Details of the financing agreement were first released by Elcott Coleby, the deputy director at Bahamas Information Services (BIS). Attributing them to “sources”, it is highly unlikely that Mr Coleby would have released them without getting authorization from the Prime Minister and/or his Cabinet ministers.

Baha Mar, in a statement issued to Tribune Business, responded: “We are aware of the posturing that has been taking place since Baha Mar commenced its Chapter 11 process.

“This posturing cannot obscure the following basic facts. The completion and successful opening of Baha Mar is widely recognised as economically important to the Bahamas.

“Despite the continuing efforts of Mr Izmirlian, the developer and largest private investor ever in the Bahamas, the general contractor repeatedly failed to complete construction (despite its assurances to both Baha Mar and the Bahamian Government), forcing Baha Mar to delay opening,” the developer added.

“No consensual resolution had been reached to allow the project to move forward successfully for months, and government monies owed were not received.

“Accordingly, the Chapter 11 process is the necessary and best path for Baha Mar to be in a position to be able to be completed and opened successfully.”

The ‘government monies’ is a reference to the $21 million owed by the Christie administration as its share of the West Bay Street re-routing costs. This sum was disputed, but the Government had agreed to release it to Baha Mar to help it pay employee salaries.

The Government has since taken over that responsibility following last week’s Supreme Court hearing, paying salaries to Baha Mar staff directly.

Tribune Business was again told that the China Export-Import Bank had objected to the previously-offered $21 million being used by Baha Mar to pay staff, insisting that the funds instead be placed in an escrow account.

China Construction America, meanwhile, is understood to be denying Baha Mar’s “shoddy workmanship” claim, instead blaming the developer’s construction scope and specification changes for cost overruns that blew through the $2.4 billion China Export-Import Bank facility.

It is also claiming that Baha Mar has failed to pay what is due for construction work completed between February and May 2015.

The action now moves to tomorrow’s Supreme Court hearing, with the China Export-Import Bank and the Government opposing Baha Mar’s bid to have the Chapter 11 proceedings recognized here, so the various protections and reliefs obtained in Delaware can have legal effect.

This battle may well be one that goes all the way to the Privy Council in London.