The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar and the Government last night continued to trade barbs over who was responsible for the $3.5 billion impasse and the delay of any resolution, although they agreed that some “progress” had been made during the Beijing negotiations.

That was about all the two could agree on, as Baha Mar accused the Christie administration of “pretending” to be an impartial observer.

For its part, the Government again blamed the developer’s intransigence for preventing resolution, saying it continued to stall on providing a guarantee for the extra $200 million credit its debt financier was willing to provide.

Dionisio D’Aguilar, a Baha Mar director, told Tribune Business he had been informed by Sarkis Izmirlian, the developer’s principal, that “a little progress” was made yesterday after their Chinese partners “conceded some ground”.

However, a government statement issued last night said “considerable progress” had been achieved on the financial/commercial formula that would form the basis of an agreement between Baha Mar and its contractor, China Construction America (CCA), for the $3.5 billion project’s completion.

“Progress” appeared to be the extent of the two sides’ agreement. While the Government described the talks as “frank and cordial, conducted in an impartial manner”, Baha Mar reiterated its belief that it is still siding with the Chinese - something the administration’s release did little to dispel.

The developer responded by accusing the Government of “posturing” to suit its own “agenda and reputation”.

Still, both Baha Mar and the Government yesterday appeared slightly more optimistic that legal action to resolve the dispute could be avoided, even though Friday’s Supreme Court hearing of the winding-up petition appears the likeliest destination for all parties.

While Baha Mar, China Construction America and the China Export-Import Bank, as debt financier, have yet to break the deadlock, and an agreement seems some distance away, they have at least agreed to keep talking.

“Sarkis told me they are inching ever-closer [to an agreement],” Mr D’Aguilar told Tribune Business. “They’ve [the Chinese] conceded some ground, and they’ve made a little progress.

“There has been a movement; not seismic, but a movement nonetheless. It debunks the theory that the talks have broken down.

“As far as I’ve been told, they’ve not broken down, they’re ongoing. It behooves the Government to keep plugging. It needs a bit of a presence. Hopefully, they’ll stay there until they get a deal.”

Tribune Business understands that while representatives from Baha Mar and both Chinese entities may meet again in Beijing this morning, that will be it, and the parties are then likely following the Government team to Nassau.

Mr D’Aguilar’s version was somewhat backed by the Government, which still made a point of noting that Mr Izmirlian was not present at the negotiations, even though his senior executives were. Nor was Prime Minister Perry Christie present.

The Government’s statement said “several proposed compromises” were suggested. However, it added that China Export-Import Bank said Baha Mar had breached the construction contract, which said cost overruns were to be borne by the developer, and chosen not to finish the development.

“While urging the parties to arrive at an agreement during the talks, the Export-Import Bank pointed out that the contract documents between the parties stipulate that cost overruns should be borne by the developer, and that the contractor should finish the project,” the Government said.

“The contract documents were drafted in this manner so that the project would be completed, and the parties would then be free to pursue remedies against each other in the courts.”

The Government said the China Export-Import Bank had agreed to lend an extra $200 million, on top of the remaining $112 million in its initial $2.45 billion credit facility, to finance Baha Mar’s construction.

But before it released the funds, the bank wants Baha Mar and/or China Construction America to guarantee the extra $200 million loan.

The Government said Baha Mar had offered to provide a ‘standby letter of credit’ to back $25 million of the new facility, while China Construction America had offered to guarantee the remaining $175 million provided Baha Mar provided a corresponding guarantee.

China Construction America’s last position was that its guarantee could be limited to $100 million, and the Government said Baha Mar had “declined to provide” anything more than the $25 million letter of credit.

Instead, the Christie administration suggested Baha Mar had ‘thrown the ball back into its court’ by suggesting that the Government provide the China Export-Import Bank “with a ‘sovereign guarantee’ of up to $175 million in place of any guarantee by the contractor”.

Baha Mar did not directly comment on the Government’s assertions in its response, merely saying: “We continue to be disappointed by the Government’s posturing and attempts to score political points under the pretence of being neutral observers in our ongoing discussions in China.

“The latest press statement by the Government is apparently constructed to suit the Government’s agenda and reputation...... The facts are: Baha Mar has made very viable proposals and discussions between the parties are continuing. We are hopeful that a productive outcome will result.”

Baha Mar and the Government thus appear further apart than ever. For the Christie administration, prior to the Chapter 11 filing and beyond, the key problem/fault has been the seeming unwillingness of Mr Izmirlian and the developer to ‘guarantee’ the extra financing from the China Export-Import Bank.

Baha Mar’s view, though, is that the dispute stems from China Construction America’s (CCA) inability to complete the project on time and on budget. And the latter’s failure to agree on the ‘devil in the details’ underlying the new financing proposals, and constant ‘moving of the goalposts’, is what the developer views as stalling resolution.

Tom Dunlap, Baha Mar’s president, in a message sent earlier this week, said Baha Mar and its contractor had reached a ‘handshake deal’ some 18 days before the Chapter 11 bankruptcy protection filing.

This involved Baha Mar dropping its $225 million claims and arbitration hearings, with both sides injecting a further $75 million each to finance completion.

Baha Mar would pay $35 million, or half the $70 million that the contractor was claiming, while CCA for its part would guarantee the China Export-Import Bank financing; provide a matching $15 million equity contribution to unlock the bank’s financing; and hire 20 expert managers to achieve an August 15 completion date.

Mr Dunlap, though, said CCA tried to change the terms one week later when it “significantly conditioned the additional equity contribution on firm commitments from [the bank; deferred the loan guarantee to future Board action; refused to pay liquidated damages for additional late delivery; required 50 per cent of retainage to be paid on achievement of a temporary occupancy certificate (TCO) in contravention of the construction contract;and requested Baha Mar waive all its claims up to the date of the June meetings, but conveniently didn’t require the same of CSCEC [its parent].

“The situation worsened later in the month when CSCEC refused even to fund its $15 million equity shortfall,” Mr Dunlap alleged.

In Beijing talks after the Chapter 11 filing, Baha Mar offered to drop its $192 million UK claim against CSCEC subject to certain conditions; withdrawn its arbitration disputes; still pay CCA some $35 million despite being told the contractor had no case; and offering to inject $200 million of its own monies.

Mr Dunlap said Baha Mar offered a further $100 million on top of the initial $75 million pre-Chapter 11, plus a $25 million letter of credit.

He described these as “very material compromises” and, having met the China Export Import Bank’s requirements, said Baha Mar was looking for CCA and CSCEC to guarantee $175 million of the new credit facility.

Baha Mar also wanted the contractor to reduce its $150 million preference share holding (equity) in the developer and accept reduced dividend payments, in return for dropping the UK litigation, Chapter 11 process and all claims.

While CCA said it had been willing to provide the $175 million guarantee in a release earlier this week, Mr Dunlap said it wanted the $100 million investment it offered to inject into the project to be ranked higher than Baha Mar’s $100 million.

“Instead, although true to form, CSCEC not only requested a ‘back to back’ guarantee on the $175 million from Baha Mar (even in the context of punitive ramifications if Baha Mar ever filed for Chapter 11 again) and refused to budge one iota on the preference shares, but incredibly as well, sought to position that its $100 million incremental funding would come in at a higher ranking than Baha Mar’s $100 million in the revised capital structure of the company,” Mr Dunlap said.