The Tribune

Divorces are often messy and expensive. And the Bahamas could be in for its biggest yet, if Baha Mar is able to woo its debt financier into agreeing a $400 million separation from its main contractor.

Realistically, the latest move by Sarkis Izmirlian, Baha Mar’s principal, to break the impasse surrounding the $3.5 billion project appears very much a long shot. That is because China Export-Import Bank, its $2.45 billion debt financier, and China Construction America (CCA), the contractor, enjoy common ownership in the form of the Beijing government. And the last thing good communists do is turn on each other, given the obvious consequences.

Mr Izmirlian’s July 23 letter to China Export-Import Bank’s president, and his message to Baha Mar’s 2,400 staff two days later, are but the latest public relations salvos as all parties to the despite manoeuvre for position, jockey for advantage, try to position themselves as the ‘good guys’.

In his latest employee missive, Mr Izmirlian took another swipe at both Baha Mar’s contractor and the Christie administration, implying that they were again working against him and the best interests of the project and workers, while studiously avoiding any blame being attributed to China Export-Import Bank.

Suggesting that the contractor had likely been emboldened to harden its stance, following last week’s Supreme Court ruling that dismissed Baha Mar’s bid for Chapter 11 recognition, Mr Izmirlian said of its actions: “CCA/CSCEC’s unwillingness to act in a cooperative fashion is probably due to the Government’s actions on the winding up.

“CCA has also moved to dismiss the bankruptcy case presumably in an effort to escape Baha Mar’s attempt to obtain discovery about CCA’s failure to perform.”

He then lauded Bahamian contractors as “the best performers since we started Baha Mar; we have no doubt that they can complete this resort”.

They form part of his $400 million ‘divorce’ proposal which the China Export-Import Bank must first approve before consummating. Some $200 million of the financing needed to complete Baha Mar will come from the Izmirlian family, and the balance from the bank.

“We hope to hear from the bank by Monday on this proposal. We are trying and willing, but, if the bank and the Government of the Bahamas do not cooperate, Baha Mar cannot make a deal by itself,” Mr Izmirlian wrote.

He has now cut through all the pretence and nice talk, making it clear that Baha Mar sees dumping its contractor as the only way to a successful negotiated settlement.

The Christie administration is highly sceptical of Mr Izmirlian’s latest proposal, especially when - in their eyes - he responded to a previously-agreed solution by placing Baha Mar into Chapter 11 bankruptcy protection.

One high-level government official, speaking on condition of anonymity, suggested that Baha Mar’s relationship with its Chinese partners was too tangled to unravel, especially given that a condition of the financing was for China Construction America to be the project contractor.

“We know there’s a strategic relationship in place that one cannot easily divorce oneself from - this tripartite relationship between the China Export-Import Bank, CCA and Baha Mar,” the official said.

They added that CCA was not only contractor but an equity investor in Baha Mar via its $150 million preference share holdings, while the financing terms required that it be contractor.

“How do you divorce yourself from that kind of legal battle taking place beyond what is happening now?” the official asked.

They also questioned how serious Mr Izmirlian was with his latest proposal, given that he seemingly rejected the solution that was on the table in June. That would have seen the China Export-Import Bank pick up $150 million or 50 per cent of Baha Mar’s then-$300 million financing needs, with the developer and contractor splitting the remaining $150 million between them.

Pointing out that Mr Izmirlian appeared to have ‘stonewalled’ on giving a personal guarantee for that $300 million, the official said: “How serious is the offer being made given where we started off?

“Whatever he’s doing, I have no real confidence he’s negotiating in good faith. There’s an end that he’s looking for that’s not clear to me, and is not clear to me. Where they started off in June was not as great as the amount he’s offering now. They’re just playing games, jockeying for position in the public discussion.”

Baha Mar sources, though, said the personal guarantee required from Mr Izmirlian back in June, prior to the Chapter 11 bankruptcy protection filing, was for the full $300 million - not just his $75 million share.

They added that the key stumbling block, then as now, was the inability to get a firm completion date from CCA, and protection against the huge multi-million exposure this represents.

Other contacts familiar with the June talks, speaking to Tribune Business on condition of anonymity, sided more with the Government in confirming that an ‘agreement in principle’ to resolve Baha Mar’s financing requirements had been reached.

They added that Mr Izmirlian knew it would take another six weeks for all sides to agree the underlying terms and conditions, such as a construction completion date, when he filed for Chapter 11.

Baha Mar contacts, meanwhile, indicated that Friday’s scheduled Supreme Court hearing on the Government’s petition to wind-up its operations and appoint a provisional liquidator, is at least concentrating its mind.

“I don’t think we want to go there at all,” one source told Tribune Business on condition of anonymity.

Opinion was divided on Mr Izmirlian’s $200 million pledge. One attorney, speaking on condition of anonymity, said: “I think he realises he’s between a rock and a hard place.

“I think he’s feeling some pressure to come up with some kind of deal.”

Other professionals, with experience in liquidations, queried whether Mr Izmirlian would use a portion of the $200 million to ‘knock out’ the Government’s winding-up petition by paying the $59 million allegedly owed by Baha Mar.

If he did, they suggested the Government would suffer a public relations loss, as people would query why it forced him to use such a huge chunk of money on paying bills, rather than getting Baha Mar open.

And, if the winding-up petition was taken care of, Mr Izmirlian could force all parties to deal with him on his terms, given the Chinese reluctance to interfere with the Delaware court and its orders.

Anyhow, with Baha Mar and Mr Izmirlian having set a deadline of today for the China Export-Import Bank to respond to its proposal, this morning’s Beijing meeting between the two parties and the contractor will be, to use a word, interesting.

And the other unanswered questions are:

• Why is the Attorney General and the Government’s team of officials heading back to Beijing now at taxpayer expense?

The Government last week said that first Baha Mar and CCA would try to resolve their differences. If they did, then China Export-Import Bank would become involved on the financing. Only when success was achieved at ‘stage two’ is the Government supposed to come in.

Given that Baha Mar is trying to divorce CCA, and ‘stage one’ is nowhere near to being achieved, it seems the Government’s return is premature to say the least. Is this a PR exercise, or a determined final attempt to get all parties over the hump?

• What happens to Baha Mar’s staff, with another pay period due? Will the developer make good on its threat of mass lay-offs, or will it - or the Government pick up the multi-million dollar tab?

• Finally, does the $400 million proposal from Mr Izmirlian include funds to pay Bahamian contractors and suppliers 100 per cent of what they are owed.