The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Construction work on the $3.5 billion Baha Mar project has reached “the stretching point”, an outspoken businessman saying the main Chinese contractor simply “has to deliver” a completed development as rapidly as possible.

Dionisio D’Aguilar said successive delays to the mega resort’s planned opening were “incredibly damaging to the developer”, due to the negative financial implications associated with the loss of potential business.

The former Chamber of Commerce president said Baha Mar would have “ramped up” staffing levels in preparation for a March 27 opening, and is now unable to ‘unwind’ headcount.

As a result, its principals, the Lyford Cay-based Izmirlian family, are faced with having to absorb an increased cost base without the expected revenues to support it.

Describing the move to cancel the May 27 opening as “an incredibly difficult decision”, Mr D’Aguilar nevertheless implied that it was the correct one, as Baha Mar would have suffered far greater long-term damage by unveiling a sub-standard product.

“It’s absolutely imperative that when you come out of the gate, you offer a quality product with quality service,” the Superwash president told Tribune Business, “and if you feel you cannot deliver one of those, it doesn’t make sense to open for the sake of opening.

“It was an incredibly difficult decision. Clearly, there are expectations that are nor being met. The construction project is proving a challenge for China State Construction to complete for whatever reason. They appear to be missing deadlines.”

Baha Mar initially targeted a December 1, 2014, opening, only to last year postpone that to Friday, March 27. It then announced, one week out, that the second opening date had been cancelled, and pushed back to early May 2015.

Turning to the financial implications of these consecutive delays, Mr D’Aguilar said: “Not only is Mr Izmirlian, I believe, anxious to get it open because he wants to make money, but every time you delay there is a cost associated with it.

“It’s very difficult working with a construction company giving you dates, and they are unable to make them. That has far-reaching consequences that are incredibly damaging to the developer.”

Mr D’Aguilar said Baha Mar was not now earning the revenues it had anticipated from a March 27 opening, despite having expanded its expense base in preparation of meeting this deadline.

“If you set a target date, build up the expense structure to meet that, and then miss it, it’s not easy to ramp back down,” he told Tribune Business.

“You just can’t turn this on and off, and if you delay a month, there’s that expense structure you are carrying.”

Potentially more serious than the short-term opening delay are the longer-term consequences of the rift between Baha Mar and its main contractor.

For China State Construction is also the Izmirlians’ main equity partner with a $150 million stake in the project.

Simmering tensions between the two sides burst into the open last week, with Baha Mar blaming the March 27 date ‘miss’ on its Chinese partner, and slamming it for ‘shoddy workmanship’.

China State Construction subsequently hit back, describing Baha Mar’s comments as “wholly inappropriate”, and refuting its allegations about sub-standard work.

The public spat indicates that the Baha Mar Boardroom table is currently likely to be coated in frost. What it means for the long-term, both for Baha Mar and the developer’s relationship with China, is currently unknown.

Another Chinese government-owned entity, the China Export-Import Bank, is the project’s main financier via a $2.5 billion exposure, giving Beijing plenty of leverage with both Baha Mar and the Bahamian government.

Another equity investor in Baha Mar is Scotiabank, which acquired its position several years ago via the debt-for-equity swap that resolved the $200 million loan taken out by the Izmirlians in 2005-2006 to acquire the existing Cable Beach hotel properties from the Government and Philip Ruffin.

Mr D’Aguilar, though, acknowledged that the size of the Baha Mar project, and its four-year construction schedule, meant it was difficult for the contractor to deliver it “on the day” - especially if that was set far out.

Yet he added: “We’re reaching the stretching point now. China State has to deliver, and they certainly have to repair that reputation.

“This is an unfortunate grind right now, and I’m sure everybody is going full steam to make it happen. A developer can’t open a hotel until there is sign-off and the construction is complete.

“You are beholden to the construction company. This is getting more than a little frustrating. I hope it happens soon. Everyone benefits when it happens; the citizens, the developer, the country.”

The ripple effects from Baha Mar’s delayed opening will be felt throughout the Bahamian economy in the short-term, Mr D’Aguilar added.

With no tourists arriving at Baha Mar, there will be no room, food and beverage and other revenue streams; no foreign exchange earnings; no tips for staff; and no business for suppliers and other Bahamian vendors.

Still, ever the optimist, Mr D’Aguilar said: “I’m confident that they’ll [Baha Mar] bring it around, and in two years we’ll have forgotten about this.”