The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sarkis Izmirlian’s latest offer to purchase Baha Mar is in vain because the project’s receivers and secured lender cannot negotiate deals outside the Supreme Court-approved sales process, Tribune Business was told yesterday.

Raymond Winder, Deloitte & Touche (Bahamas) managing partner, explained that neither he nor the China Export-Import Bank could talk to Baha Mar’s original developer outside of the formal sales process initiated last month.

Mr Winder, who together with two Hong Kong-based Deloitte & Touche partners is acting as Baha Mar’s receivers, said the Supreme Court approval for that process effectively barred them from entertaining any bids/offers that were submitted outside it.

This means that Mr Izmirlian’s April 11 letter to the China Export-Import Bank, reaffirming the Baha Mar purchase offer he made in January 2016, will be for nought, as the development’s financier cannot negotiate with him - even if it wanted to.

Mr Winder, providing further insight into the situation, said the receivers had “rejected all offers received” prior to launching the formal sales process.

He added that this move, and the structuring of the process to find a new Baha Mar owner, had been approved by both the Supreme Court and the joint provisional liquidation team of Bahamian accountant, Ed Rahming, and two UK-based colleagues.

“It is our position that any entity, and that includes Sarkis, the original developer, desirous of purchasing the resort, their offers have to come through the sales process we have agreed with the courts,” Mr Winder told Tribune Business.

“These bids will be assessed, and the best bid selected at the appropriate time. The matter is before the courts, and the courts have agreed a process to identify the potential bids, and select one of those bids as the ultimate purchaser for the property. That’s the process we’re going to follow.”

Mr Winder confirmed that Mr Izmirlian’s direct approach to the China Export-Import Bank earlier this week, which appeared to be an ‘end run’ around the Supreme Court-approved process, would not be considered unless it was submitted via this structure.

“Even if we wanted to negotiate one-on-one with Sarkis, we couldn’t do it,” he told Tribune Business, “and the bank can’t negotiate with him one on one. We can’t go making a deal with Sarkis.”

Mr Winder said the receivers had a duty to all creditors, not just the China Export-Import Bank, to maximise Baha Mar’s value in any sale. And the best way to achieve that is a process that invites a bidding war, not just negotiating with a single investor - whether Mr Izmirlian or somebody else.

“While Sarkis does have an interest in the project, there are other unsecured creditors that have rights in it, too,” he explained.

“It’s in the interests of those creditors,and Sarkis, that we select the best bid.”

Mr Winder’s comments effectively ‘nix’ Mr Izmirlian’s strategy of approaching the China Export-Import Bank directly, and will likely dampen some of the enthusiasm that was ignited earlier this week.

Besides Mr Izmirlian’s confirmation of his latest approach, the renewed optimism also stemmed from signs that he is ‘back in favour’ with the Government, as Prime Minister Perry Christie urged the bank to give the offer ‘due consideration’.

Mr Izmirlian must now compete with all-comers in a ‘beauty parade’, in which all bidders will battle on a ‘level playing field’ through having access to the same information. There is no guarantee he will win.

Still, the original developer remains well-placed to ‘buy back’ Baha Mar, given the ‘inside knowledge’ he and his former executive team still possess on what is needed to complete construction, plus all the commercial arrangements with hotel brands, retail and restaurant tenants, and suppliers.

No other bidder will possess such information, leaving Mr Izmirlian in a strong position to complete and open Baha Mar faster than anyone else.

His offer is also likely to be more favourable than most to this nation, given that he would be positioned to get Baha Mar’s 2,000-plus laid-off start back to work quicker than other persons.

Mr Izmirlian has also promised to make the China Export-Import Bank and all Bahamian creditors, including the contractors owed a collective $74 million, plus local suppliers and vendors, whole.

While these attributes will be especially appealing to the Bahamas and its economy, it remains to be seen whether the receivers would ‘go’ for another part of his plan - dumping China Construction America (CCA) as the project’s contractor.

Mr Winder’s revelations again indicate just how little control and influence the Government now has over the Baha Mar outcome. They also mean that the likes of Sir Sol Kerzner and his joint venture partner, Andrew Farkas; the Chinese-based Club Med and Cirque du Soleil owner, the Fosun Group; and the Mohegan Sun casino brand will all have to participate in the formal sales process if they want to buy Baha Mar.

All three have previously been named as groups who approached the receivers and China Export-Import Bank prior to the formal sales process launch.

That has so far seen the Deloitte & Touche receivership team hire Canadian-headquartered real estate firm, Colliers International, to market the Baha Mar development to all potential buyers worldwide.

Meanwhile, Mr Winder revealed that the receivers have allowed one of Baha Mar’s key vendors to repossess some $16 million worth of casino gaming equipment that had been leased to the mega resort.

He explained that the receivers could not justify the expense associated with continuing to lease PDS Gaming’s 630 slot machines and associated equipment, given that the casino is closed and their limited cash needs to be conserved.

“Those machines were installed over a year ago in expectation of Baha Mar opening in March 2015. We all know what happened then,” Mr Winder told Tribune Business.

“One of the challenges we were having is that slot machines depreciate pretty quickly, because of technology and the introduction of new games.

“As the casino is not open, we considered permitting the owner [PDS Gaming] to retrieve the machines the most appropriate action at this time. We don’t think we should pay the high leasing charges; we thought what they were looking for is too high.”

Mr Winder said the receivers tried to negotiate a lower lease payment with PDS Gaming, but were ultimately unsuccessful.

The removal of the slot machines started yesterday under the supervision of Baha Mar’s security staff and the Gaming Board, with all necessary regulatory procedures now completed.

Observers familiar with developments at Baha Mar said the machines’ removal was another sign of how the $3.5 billion development was continuing to deteriorate, and also indicated that no potential sale is imminent.

Mr Winder, though, said around 400 slot machines remained at the casino.

“While the removal of the machines is not the preferred option of the receivers, we’re confident a new investor will upgrade Baha Mar’s gaming offering,” he told Tribune Business.

“This development will enable future investors to choose the latest games and technology to offer to Baha Mar patrons, and provide a superior gaming experience once the resort opens.

“It’s difficult to justify this high lease if the machines are sitting there on the floor doing nothing.”

In court documents filed last year as part of Baha Mar’s Chapter 11 action, PDS Gaming alleged that Baha Mar was $701,008 in arrears on two casino equipment rental contracts by July 2015.,

These required it to pay PDS Gaming some $169,873 and $172,211, respectively, per month.

Peter Carey, PDS Gaming’s chief financial officer, alleged it had supplied Baha Mar with 1,100 gaming devices and associated equipment hardware for the casino under a January 27, 2015, contract.

Apart from the slot machines, this also included the equipment for Baha Mar’s Bally Technologies casino management system.