The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Izmirlian family’s prospects of being ousted from the $3.5 billion Baha Mar project are “a lot higher today than before the Chapter 11 filing”, a leading businessman yesterday warning their credibility with the Bahamian people had suffered a major hit.

Franklyn Wilson told Tribune Business that while it was “fundamental” for all parties to the Baha Mar dispute to return to the negotiating table, as occurred at yesterday’s Supreme Court hearing, the project’s future ownership was now firmly on “the agenda”.

Questioning whether Baha Mar (the Izmirlians), its Chinese partners and the Government would be able to set aside the public criticisms they have made of one another, Mr Wilson added that the resumption of negotiations would also determine how quickly the mega resort complex will open.

However, the Arawak Homes chairman said the continuing fall-out from Baha Mar’s surprise decision to seek Chapter 11 bankruptcy protection in the Delaware courts meant it was now more likely than ever that Sarkis Izmirlian and his family may lose control of a project they have spent 13 years developing.

“I would say that the probability of a change in ownership there is a lot higher today than it was a week ago, before they went into bankruptcy court in the US,” Mr Wilson told Tribune Business of Baha Mar.

“Going back to the table will influence how fast it will open, and who will be the owners now. That’s on the agenda now.”

He said there were “several reasons” for his assessment as to why the Izmirlians’ continued majority ownership of Baha Mar had become increasingly vulnerable since the June 29 filing for Chapter 11 proceedings.

“The last week has caused a lot of people to ask and raise a lot of questions,” Mr Wilson added. “A number of the questions, unfortunately, put the Baha Mar owners in a position where they have to provide some real answers.

“How much real money did they invest in that project? To get the credibility they had a week ago back, they have a lot to do. People have offered comments that cannot be lightly ignored.

“In the process of answering all these types of real questions, all these things contribute to the probability of a change in ownership there.”

Tribune Business understands that a key Baha Mar objective in filing for Chapter 11 protection, apart from preventing the China Export-Import Bank from foreclosing on its mortgage security at Cable Beach, was to concentrate minds and get its Chinese partners to focus on “earnest negotiations” to resolve their outstanding issues.

Events over the past week suggest that Mr Izmirlian, Baha Mar’s chairman and chief executive, has succeeded in that goal. He appears to have been pursuing a ‘twin track’ strategy all along, negotiating with the Government and Chinese will simultaneously preparing for Chapter 11 should it become necessary.

However, his negotiating position would be much stronger had the Supreme Court agreed to recognise the Delaware Bankruptcy Court’s Orders in the Bahamas, thereby giving them legal effect locally.

Without that recognition, Mr Izmirlian and his family cannot ‘ring fence’ the Baha Mar project from its creditors, especially the China Export-Import Bank which, after the Government, heads the list due to the real estate liens securing its $2.4 billion debt financing.

Although the Chinese bank will probably ‘hold-off’ to give negotiations a further chance, Baha Mar is still vulnerable to any foreclosure moves by its principal lender.

Should the China Export-Import Bank ultimately exercise its powers, it would likely appoint a receiver to preserve and protect the resort’s real estate assets, before marketing the property to potential buyers. If that occurs, the Baha Mar project and their near $900 million equity investment will be lost to the Izmirlians for ever.

The Government, too, despite its public protests of neutrality, appears to have sided with the Chinese over the Baha Mar dispute, given the vehemence of the Prime Minister’s response to the developer by suggesting Mr Izmirlian was becoming unhinged.

The Christie administration’s reliance on China to fulfill an investment ‘wish list’ critical to its re-election hopes, including downtown Nassau’s wider redevelopment, appears to have combined with its fury at being ‘blindsided’ by Mr Izmirlian to prompt it to seek a replacement owner for Baha Mar.

Still, yesterday’s Supreme Court adjournment effectively means that all sides, including the Government, have agreed to an almost two-week ‘breathing space’ to give last-ditch negotiations a chance to resolve the Baha Mar impasse.

The next ‘open court’ hearing has been set for July 20, which is the same date that the Delaware Bankruptcy Court is scheduled to hear any Baha Mar application for permission to pay $1.861 million in severance pay to some 2,400 employees.

In effect, Baha Mar, the Chinese and the Government now have 13 days in which to resolve their differences and agree on how to complete, then open, the $3.5 billion project.

Should no resolution be reached by July 20, there is every chance - based on its previous comments - that Baha Mar would begin mass staff lay-offs.

“Baha Mar’s singular focus is to do all it realistically can to enable Baha Mar to be completed and opened successfully as soon as practicable,” the resort developer said yesterday.

“Therefore, we welcome the parties’ agreement today to our motion for the adjournment of these proceedings to July 20.

“We look forward to engaging in substantive discussions with the parties to try and reach a consensual resolution that will allow us to move forward, and acknowledge the Government’s constructive role in those conversations.”

Mr Wilson yesterday told Tribune Business that it was “fundamental” that all sides return to the negotiating table, although he questioned whether they could overcome the vitriol and mutual recriminations over who was responsible for the Baha Mar project’s woes.

“That’s a good place for them to be,” he added of the talks. “I would imagine a lot would have changed since they were last in the Board room. I don’t know to what extent it’s possible to sit down as if nothing has happened.”

Other observers, too, expressed doubts over whether the warring parties would be able to ‘bridge the gap’ created by a divide that only seemed to deepen over the past seven days.

“The blood has been spilled, the die has been cast,” one financial sector source said, speaking on condition of anonymity.

Another source close to Baha Mar said: “It was becoming too acrimonious. Everyone had to dial it back a little. The way it was going with all this acrimonious discussion wasn’t in the best interests of everyone.

“They’re fighting about the wrong. They need to get a deal, and stop saying who got this wrong, who got that wrong.

“In every divorce you need a period of fighting, and then both sides say they want to work things out,” the source “Hopefully, they will sort this out and cooler heads will prevail. I’m just hoping everything calms down.

“Once everyone gets around the table, they can start to negotiate in earnest. Sure, there are a lot of hurt feelings, but they have to calm this down.”