The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bidders seeking to acquire the $3.5 billion Baha Mar project have been banned from speaking to Sarkis Izmirlian, his former executives and the project’s main contractor.

The bar, imposed by receivers Deloitte & Touche, has prompted one ex-Baha Mar director to question the “transparency” surrounding the just-launched sales process for the mega resort development.

Dionisio D’Aguilar also questioned how bidders would be able to conduct “proper due diligence” if they were blocked from speaking to the two parties who knew most about Baha Mar’s current condition.

However, Raymond Winder, Deloitte & Touche (Bahamas) managing partner, told Tribune Business that the ‘ban’ was necessary to maintain a ‘level playing field’ between bidders.

He explained that it would ensure all potential Baha Mar suitors had access to the same information, and that no one could gain a competitive advantage by obtaining extra details from the original developer and project contractor.

Clause 18 of the non-disclosure agreement (NDA) that all Baha Mar bidders are being asked to sign explicitly prohibits them from contacting either Mr Izmirlian or China Construction America (CCA), and their respective executive teams, employees and advisers.

Bidders are also barred from speaking to Baha Mar’s “creditors” and “suppliers”, meaning they are unable to communicate with Bahamian contractors who worked on the project, plus current and former vendors.

Clause 18 reads: “The Potential Investor shall not contact or communicate with any current or former directors, officers, employees, consultants, advisers, bankers, customers, creditors, suppliers or representatives of the group, or representatives, officers, directors of employees of CCA Bahamas, in connection with the sale without the receiver-managers’ written consent.”

Explaining the clause’s insertion into the NDA, Mr Winder told Tribune Business: “One of the reasons is that we wanted everyone to have access to the same information.

“The issue really is to control the information, and ensure the information is consistent from one bidder to the next. That’s the primary reason.”

Mr Winder, who is one of Baha Mar’s three receiver-managers, added: “If we allow a bidder to ask questions [of Mr Izmirlian and CCA] and don’t know what they are, and someone else doesn’t, that first bidder will have access to information that other bidders don’t.”

He explained that the receivers will constantly be adding information to the ‘electronic data room’ that will be made available to Baha Mar bidders, so that they can conduct full due diligence.

Mr Winder said much of the additional information would likely result from bidder questions, and by inserting the answers into the ‘data room’, all suitors would still have access to the same information.

Mr D’Aguilar, though, questioned whether Clause 18 might be counter-productive and actually deter some potential bidders.

“It really minimises the ability of anyone to do proper due diligence,” he told Tribune Business. “Clearly, this is meant to exclude those who are most knowledgeable about the project (the developer, senior former executives, and large suppliers) from the process.

“Is this really an open sales process? Is this really value maximizing for all creditors? If you’re going to buy a product, you go to the person selling it, but you also want to speak to the people involved. Why would the court approve this?”

Mr D’Aguilar continued: “Why would you prevent bidders from speaking with people intimately involved with the project? I’m a little dismayed by this lack of transparency.

“You would be crazy to buy this without talking to the original developer. He’s going to be in the best position to maximise value for you. What does it involve? What makes Baha Mar attractive? What makes it a sell?”

Allowing bidders to speak to one or both of Mr Izmirlian and CCA could also prove more of a hindrance than help to selling Baha Mar, given that both will likely possess negative information on the other in relation to what led to the development’s demise.

Disclosures about the nature of their dispute could prove distracting, and confusing, for potential bidders and possibly deter some from making an offer.

Clause 18’s contents indicate that the China Export-Import Bank and its receivers want to keep all due diligence narrowly focused on the information they provide - thereby controlling both the content, and how it is distributed.

However, few are better placed than Mr Izmirlian and CCA to provide Baha Mar suitors with what they need to know.

CCA, as the project’s main contractor, will have intimate knowledge about what is necessary to complete Baha Mar’s construction, plus any flaws in the existing structure that need to be fixed.

The decision to bar bidders from speaking to CCA also raises questions as to what happened to the Chinese contractor’s assessment of the work necessary to complete Baha Mar, which was supposedly performed after joint provisional liquidators were appointed last year. It is unclear whether this will be presented to potential suitors.

As for Mr Izmirlian, he and his former Baha Mar executive team possess first-hand knowledge of all necessary operational details, including contracts with hotel and casino operators, retail and restaurant tenants, and suppliers.

An insight into Baha Mar’s complexity was provided to Tribune Business last month by Andrew Farkas, Sir Sol Kerzner’s partner on their joint venture bid to acquire the Cable Beach-based project.

“This [Baha Mar] is amongst the most complex hospitality projects undertaken in a single phase anywhere. Certainly, it’s the most complex and sophisticated in the region ever,” he told this newspaper in an exclusive interview.

“The amount of homework necessary to fully understand the programmes that bring the project to profitability is enormous. Just to do the homework properly will cost millions of dollars.”

Giving further insight into the complexity involved in reviving Baha Mar, Mr Farkas said: “There are 40 restaurant leases and operating agreements to be reviewed alone.

“You’re going to have to review and understand the agreement with the operator for the casino. To the best of my knowledge, some of the operating and franchise agreements with some of the hotel flags may not be enforceable.

“We have heard that possibly Rosewood is out. There are the retail shops, concessions, tax agreements, the physical plant itself. It’s a very sophisticated environment,” he added.

“It will take someone a great deal of time and potentially millions of dollars to develop a fully integrated business plan for the property.”

Tribune Business exclusively revealed last week how China Export-Import Bank and its receivers had hired Colliers International to market Baha Mar to potential purchasers.

The Canadian-headquartered real estate firm, which has offices in 66 countries, has effectively kick-started the formal sales process for the project - a step that the Chinese bank’s advisers have been urging it to take for months.

By initiating a structured process, the Deloitte & Touche receiver-managers are aiming to create ‘a level playing field’ where all bidders have access to the same due diligence information on Baha Mar.

And, by inviting all-comers to bid, they are also seeking to dispel any notion that the $3.5 billion project will be sold via a ‘back room deal’.

Many observers have privately stated their belief Baha Mar was being reserved for a Chinese buyer, such as the Fosun Group, given the China Export-Import Bank’s ‘impossible demand’ that it recover its full $2.45 billion outlay on the project.

Fosun, the Club Med and Cirque de Soleil owner, together with Sir Sol and Mr Farkas, will now have to join all other bidders in a process that appears designed to alleviate the latter’s concerns about an absence of due diligence information.

After signing the NDA/confidentiality agreement, Baha Mar bidders then have to “provide proof of credibility” to the receivers - Mr Winder and his Hong Kong-based colleagues, Lai Kar Yan and Darach Haughey.

Suitors will have to show their “financial capability and company background”, plus provide proof of funding, audited financial statements and industry expertise.

Once this is established, bidders then have to pay a $50,000 fee to ensure access to an electronic data room, where all due diligence data deemed necessary is stored. The fee is only refundable if the process is terminated before a bidder is selected.

Bidders will be free to conduct their own investigations and analysis, apart from the restrictions on speaking to Mr Izmirlian and/or CCA. Any disputes will be heard in the Bahamian courts.