The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

With all sides tight-lipped, it is almost impossible for Bahamians to know what is really happening with the $3.5 billion Baha Mar project.

When someone does say something, it is usually in the riddles of Prime Minister Perry Christie, never the easiest person to decode.

Yet, based on the few public pronouncements that have been released, it is possible to make an educated deduction of the ‘broad picture’ issues that are delaying this vital development from reaching the finish line. At the risk of being accused of pure speculation, here goes.

THE MAIN PROBLEM

Baha Mar needs more money to complete construction. Estimates of the sum required range from $100 million to $400 million. The biggest issue likely facing the main protagonists - Baha Mar (the Izmirlian family), China Export-Import Bank (the debt financier) and China Construction America (the contractor) is who forks out the money, how much, and the financing structure employed.

BAHA MAR’s STANCE

Sarkis Izmirlian, Baha Mar’s chairman and chief executive, is likely insisting that the Export-Import Bank pony up most, if not all, the financing that is required.

He will likely point to the “shoddy workmanship” of its fellow Chinese state-owned company, China Construction America, as justification for making such a demand. The construction financing was ‘burnt through’, Mr Izmirlian will argue, because of the contractor’s quality management and scheduling deficiencies, and the fact it had to re-do multiple work because of a failure to pass Building Code inspections.

Mr Izmirlian’s position will thus likely be that the contractor is liable, and should also help to provide the required financing. Not to mention his desire for a confirmed opening date.

CHINA’S STANCE

Obie Wilchcombe, the minister of tourism, probably got it right this week when he suggested Mr Izmirlian “said too much” with his “shoddy workmanship” comments.

These were released to show why Baha Mar was purportedly unable to meet its March 27, 2015, opening deadline, with the blame 100 per cent pinned on the contractor.

The result, though, was to leave China Construction America ‘fully vexed’ that it had been dissed in public by Baha Mar. Such remarks do little for the contractor’s desire to use the Bahamas project as a springboard for getting into more major construction projects in the Western Hemisphere. And they have already been seized on with glee by right-wing US media such as the Wall Street Journal, which has used them to send negative messages about the advisability of hiring Chinese contractors.

Not surprisingly, as the Chinese tend to do, China Construction America has subsequently dug in its heels and decided to play ‘hardball’ over the Baha Mar project’s future.

It had already signalled its intentions with Baha Mar, its fellow equity partner, by deliberately slowing down the construction work pace in the run-up to March 27, due to a dispute over how much it was due to be paid for February’s work.

Ably assisted by its fellow Beijing-owned institution, the Export-Import Bank, the contractor appears to have been engaged in a high stakes game of brinkmanship in the belief that the Izmirlian family will ‘blink’ first.

After all, the $2.4 billion lent to Baha Mar thus far will be viewed as ‘pocket change’ by Beijing, given the surplus assets available to it. The Chinese are in no rush, and can easily ‘wait out’ the Izmirlians, who will feel the financial pressures first.

It is unclear whether Baha Mar is already having to make payments on its Export-Import Bank debt - something that will further strain the Lyford Cay-based family, billionaires though they may be. And just as uncertain is whether the Chinese are willing to let the squeeze take hold so tight that the Izmirlians have to sell, either to them or an acceptable partner.

Either way, the joint Chinese position is likely to be that they want the Izmirlians to kick-in at least a portion of the financing required to complete Baha Mar’s construction, even though there is a case for the contractor to answer.

GOVERNMENT

STANCE

The Christie administration has sent mixed signals ever since the Baha Mar saga exploded into the current impasse. Given that 2,000 current jobs are in jeopardy, not to mention the total 5,000 expected to be hired when full operations commence, this has been somewhat mystifying.

Given Baha Mar’s importance to economic growth and employment projections, not to mention its 2017 re-election chances, one would have expected the Government to go ‘all out’ to engage its fellow politicians in Beijing and broker a solution as early as possible.

Yet it is only in the past week that Prime Minister Perry Christie appears to have become fully engaged again. He glossed over the Baha Mar situation in his 2015-2016 Budget address, and then almost seemed to wash his hands of the situation, and disassociate himself, from the problem when he told reporters to ask the developer when the project would open.

Other members of his Cabinet have shown no ambivalence as to where their sympathies lie. Deputy Prime Minister Philip Davis has attended both China Construction America’s Panama event, and an infrastructure conference in Macau.

And Bahamas Uncensored (the website not associated with Fred Mitchell, minister of foreign affairs), pulled no punches recently by blaming it all on the Izmirlians. The Minister, whose foreign policy often seems to involve cosying up to Communist dictatorships (Cuba a prime example), said pretty much the same thing when responding to Dr Andre Rollins in the House of Assembly last week.

Subsequently, the Prime Minister alluded to the difficulties Baha Mar has in keeping 2,000 people on payroll with no income to pay their wages. And this week it was revealed that the Government is prepared to pay the $21 million balance that Baha Mar claims it owes for the West Bay Street re-routing in two tranches next month, provided the developer and the Export-Import Ban reach a deal to resolve their differences.

This begs the question: To concentrate the Government’s mind, and counter its apparent China sympathies, did Mr Izmirlian threaten/warn of the ‘nuclear option’ of having to let Baha Mar staff go en masse unless the administration stepped up to the plate, did something, and got more involved in brokering a resolution.

For the Government does have some leverage. It could withhold the permits China Construction America requires for its $200 million development at the British Colonial Hilton, but has shown little inclination to do so. Why?

It might have something to do with the wish list, or ‘begging bowl’ if you prefer, that Mr Christie and his entourage took with them to China in January 2015. With the Bahamas’ economic revival, and the PLP’s re-election prospects, heavily depending on how much the Chinese come through on, the Government is unlikely to offend Beijing by batting too heavily for the Izmirlian interests.

THE END GAME

How this plays out is uncertain, but there is too much at stake for all sides involved for Baha Mar not to ultimately be completed and open. The Izmirlians need a return on their investment; the Government badly needs an economic boost; the two Chinese companies will suffer untold reputational damage if the project becomes a disaster; and Beijing will take a big diplomatic hit in part of the world it is desperate to make inroads into (America’s back yard).

The main questions are:

• What will Baha Mar’s ownership structure look like when the refinancing is completed?

Will the Izmirlians be able to, or have to, provide more equity financing? If they don’t, will they lose majority ownership of the project?

• And if the latter event happens, will the Chinese government find itself as the new owner of a key resort project and several thousand acres of prime Bahamian real estate, with all that portends for our sovereignty and economy?

One who was not enthused at the potential for Chinese ownership was Morgan’s Hotel Management Group. One of the key reasons it withdrew was Baha Mar’s inability to get an agreement from the Chinese that its Mondrian brand would remain in place even if they had to foreclose.

The only thing that can be said, especially for Baha Mar’s 2,000 employees and countless other Bahamians whose livelihoods were depending on Baha Mar, is: Watch this space! The devil, as always, will be in the details agreed by the parties.