The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian construction companies owed a collective $74 million over Baha Mar were yesterday said to be in urgent need of “a lifeline”, amid continuing questions on why the project’s Chinese contractor was not required to post a performance bond.

Leonard Sands, the Bahamian Contractors Association’s (BCA) president, told Tribune Business that such a security would have “protected everyone” once China Construction (America) failed to complete the $3.5 billion development on time, and on budget.

And he also demanded that the Government enact, via Parliament, so-called ‘lien laws’ that would require all creditors to be paid before a project such as Baha Mar was sold to a new buyer.

Mr Sands described Baha Mar as “a case book study” on how not to construct and finance a major real estate investment project in the Bahamas, arguing that it would provide lessons for years to come.

But the “excruciating” uncertainty over whether Bahamian contractors will be paid all , some or nothing of what is owed to them goes on, with Mr Sands telling Tribune Business that the China Export-Import Bank’s takeover of the stalled development had done little to clarify the issue.

He warned that some “anchor” Bahamian construction companies could even be forced out of business, given that they simply could not absorb “the hit” resulting from $5-$10 million worth of unpaid work.

Speaking after the Chinese bank effectively took over ownership of Baha Mar via the Supreme Court-authorised appointment of Deloitte & Touche as its receivers, Mr Sands said of the move: “That is obviously a very concerning matter.

“Many of our members who are affected by it are gravely concerned. The outcome is uncertain for a lot of persons. They don’t know what it going to happen.

“Right now, they are just stalled. This has been terribly excruciating for them. It’s getting worse and worse. The money’s out there, and they’re looking for a lifeline.”

Mr Sands said he and the BCA “don’t know enough” to say whether Bahamian contractors will receive all of what is due to them, or whether it will be a percentage as low as “$0.20 on the $1, $0.15 on the $1”.

Deloitte & Touche’s role will be to maximise Baha Mar’s value for the sole benefit of the China Export-Import Bank, in a bid to ensure the latter recovers its $2.45 billion outlay that is secured on the project’s real estate assets.

As the secured creditor, any proceeds from a sale of Baha Mar will first go to the China-Export Import Bank, leaving all other creditors - including Bahamian contractors and vendors - to, in theory, fight over the scraps that are left.

Baha Mar’s existing debt load, coupled with the extra $600 million needed to complete the resort’s construction, will make it extremely difficult - if not impossible - for the China Export-Import Bank to recover 100 per cent of what it is owed.

This potentially could leave the Bahamian creditors with nothing, although Allyson Maynard-Gibson, the attorney-general, on Monday said the Government was insisting that all local contractors be fully paid what they are owed.

While the Christie administration is likely putting pressure on the bank to make all Bahamian creditors ‘whole’, no agreement to do so has been publicly forthcoming from the Chinese.

Mr Sands yesterday urged the Government to clarify what was likely to happen next with Baha Mar, and whether this was set to result in a “productive resolution” for the contractor creditors.

He added that the BCA’s Board of Directors was set to meet on Thursday to discuss the Baha Mar situation, and the organisation was likely to reach out to Prime Minister Perry Christie or Deputy Prime Minister Philip Davis to obtain more information and clarification.

Asking whether the Government had indeed negotiated a deal with the China Export-Import Bank to ensure Bahamian contractors did not lose money, Mr Sands said: “We’re hoping someone closer to the facts can tell us what this [receivership] means for creditors.

“We’d like to see the project completed and Bahamian contractors have involvement in it. It’s at the point where some businesses may be forced to close down. It’s that serious.

“Our economy is very fragile, and businesses losing $5-$10 million, you don’t plan for that kind of hit. That’s staff going home, kids out of school, mortgages not paid,” Mr Sands added.

“There’s a lot of ripple effects, and some of the anchor businesses cannot get the debts they are entitled to. I think they’re going to have to get very defensive to protect what they can, but defensive from a point of weakness.”

Mr Sands said the BCA and wider construction industry needed to draw the appropriate lessons from the Baha Mar debacle on how to service and issue construction contracts for major investment projects.

Contractors engaged on such developments normally have to post performance bonds to guarantee their performance but, going against standard industry practice, it appears China Construction (America) or CCA was not required to obtain one.

Had it done so, Baha Mar and its developer, Sarkis Izmirlian, would likely have been able to ‘call it in’ once CCA failed to perform, providing them with enough money to potentially finish the project and avoid the heartbreak of the last eight months.

“I don’t understand how, at this point in time, a performance bond was not in place to protect everyone,” Mr Sands told Tribune Business, suggesting it may have had something to do with the common ownership of, and cosy relationship between, CCA and the bank.

The BCA also promised to “advocate very strongly” for ‘lien laws’, describing them as “the next best thing in protecting everyone’s interests going forward”.

“Every single person owed money would have had an interest in Baha Mar, so they would be paid before it was sold,” Mr Sands added.

“This has become a history lesson. This is a classic case of so many things that have come back to bite. This [Baha Mar] is a case book study for many years of how not to fund international projects.”