The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Democratic National Alliance’s (DNA) leader believes the China Export-Import Bank will have to increase its investment to near $4 billion to open Baha Mar, as he warned of “a nightmare” facing Bahamian creditors and investors.

Branville McCartney told Tribune Business that Baha Mar’s Bahamian creditors were likely to receive “cents on the dollar”, if that, as a result of the Chinese bank successfully appointing its own receivers for the project.

And he predicted “heart break” for many Bahamian investors in Baha Mar’s retail and restaurant concessions, as the contracts securing their multi-million dollar investments were now effectively ‘null and void’.

The DNA leader also agreed with former Baha Mar director, Dionisio D’Aguilar, that it would “not be a happy ending” for the Chinese given that it was difficult to see how the project - carrying such a huge debt burden - could ever generate a profit.

Apart from the $600 million that the Prime Minister said is needed to complete Baha Mar’s construction, Mr McCartney said further millions would have to be spent on marketing the property and restoring its battered reputation “before the first visitor comes through the door”.

Speaking after the Supreme Court gave permission for China Export-Import Bank to appoint the Deloitte & Touche accounting firm as Baha Mar’s receivers, Mr McCartney said its outlay would likely “go way beyond the $3 billion mark”.

With the Chinese bank likely to finance Baha Mar’s construction and opening, he added: “If they take the route of bringing it up to code, that will be $600 million, and you’re already well over the $3 billion mark.

“That’s before the first visitor comes through the door. You’re probably looking, before that first investor comes through the door, nearly $4 billion that will have been invested by the bank if they take the route of opening the doors.”

Deloitte & Touche’s appointment as Baha Mar’s receivers comes merely from the China Export-Import Bank exercising its powers, under the $2.45 billion mortgage debenture it holds, should the developer default on loan repayments.

The Chinese bank has already advanced around $2.35 billion in debt financing to Baha Mar, and should the Prime Minister’s cost estimates be correct, completing construction will take its outlay to almost the $3 billion mark.

The China Export-Import Bank has three likely options - an immediate sale of Baha Mar to a new developer; completing construction and then seeking an immediate buyer; or the ‘complete construction’ and own, operating the property via management partners, until an opportune time to exit arrives.

Observers believe the latter option is the likeliest scenario, but Mr McCartney agreed with Mr D’Aguilar that all three would probably see the Chinese bank needing to take a ‘hair cut’ and loss on its investment.

This is because Baha Mar is unlikely to turn a profit in the Bahamas’ relatively high operating cost environment with a $3 billion-plus debt load, a sum considerably higher than the $2.4 billion that sank Kerzner International’s ownership of Altantis.

Mr McCartney explained that as secured creditor, the China Export-Import Bank would stand ahead of all other claimants - Bahamian contractors and vendors - in the claimants’ queue.

And, if it was only able to reclaim a percentage of its outlay, such as $0.50-$0.60 out of every $1 spent, then all monies from any sale would go to the China Export-Import Bank - potentially leaving Bahamian creditors with nothing.

“The bank’s primary goal is to recoup their money, and that is currently $2.5 billion,” Mr McCartney told Tribune Business. “If that is paid, nothing else will be.

“The main creditor is the bank, who holds the debenture over that property. They must be paid first. Izmirlian is out of the picture, and that is a concern for our creditors; all the Bahamian creditors.

“It won’t be a happy ending. If they [the China Export-Import Bank] are keeping it they are still losing, and if they try to open the doors, they’ll probably be out another $1.5 billion before the first visitor comes through the doors.”

Asked whether he believed the receivership may result in Bahamian creditors recovering only a percentage or nothing of what was due to them, Mr McCartney replied: “I hate to be the bearer of bad news, but that unfortunately seems to be the case.

“It will be very difficult to get what is owed to them paid at all or, if they are paid, it’s likely to be cents on the dollar. My heart goes out to them. It’s very difficult that they would be satisfied.”

The Bahamian Contractors Association (BCA) previously said some 120 local construction companies are collectively owed $74 million for work performed on Baha Mar. And trade creditors were said to be owed some $123 million when the developer filed for Chapter 11 bankruptcy protection on June 29.

Then there is the $43 million invested by Bahamian entrepreneurs in retail and restaurant concessions, plus supply contracts, with Baha Mar. Mr McCartney said the Deloitte & Touche receivers were under no obligation to honour any of those arrangements.

“I know some of the persons who have invested in the development,” the DNA leader told Tribune Business. “Some of them, I’ve been told, have invested their life savings in that business venture.

“It’s very heart breaking. There are a number of Bahamian businessmen who have invested millions of dollars. It’s very, very unfortunate. It’s a nightmare for many of them. I do sympathise.”

Mr McCartney expressed scepticism over whether the Government could force the China Export-Import Bank to honour 100 per cent of the debts owed to Bahamian creditors, as its recent statements had implied.

“The Government will have a very difficult time dictating any terms in this regard,” he told Tribune Business. “The Government’s terms were dictated under the Heads of Agreement. In terms of whether they can direct the bank to pay its creditors, that becomes very, very hard.”

Mr McCartney said the China Export-Import Bank’s decision to appoint receivers, and foreclose on its mortgage, meant Baha Mar’s fate was now “out of the hands” of the Government - especially since the move would replace the joint provisional liquidators.

Emphasising that the bank’s action was “no surprise”, and had been awaited for months, Mr McCartney said it would also have to spend considerable sums on re-hiring the 2,000-plus staff recently terminated - both Bahamians and foreigners.

“It’s going to take months and months and months,” Mr McCartney said of Baha Mar’s completion. “It’s probably going to be the next Government of this country that will be the ones opening the resort. It’s not an easy fix.”

Suggesting that Baha Mar would have to be rebranded under a new name due to the massive reputational hit it has suffered, the DNA leader suggested it would take a long time before the international travel market was “comfortable” with the property again.

“It’s going to take a hell of a lot of marketing internationally,” Mr McCartney told Tribune Business. “There’s going to be a hell of a lot of money involved.

“When the book is written on Baha Mar, it will be a thriller in a bad way. I put it at the feet of the Government. The Government, first and foremost, put all their eggs in one basket.

“Number two, this was supposed to be their [Mr Christie’s] baby, but they seem to have failed to keep an eye on their baby. For the life of me that is the responsibility of the Government - to ensure every place is up to code.”