The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Baha Mar director yesterday expressed frustration that “the Government couldn’t see we were being taken advantage of by China Construction America”, suggesting it had been blinded by its “love affair” with the Chinese.

Dionisio D’Aguilar told Tribune Business that the developer and its principal, Sarkis Izmirlian, “could never understand why we were the bad guys” when the dispute had been sparked by China Construction America’s (CCA) failure to complete the $3.5 billion project on time and on budget.

He then expressed concern that CCA and Baha Mar’s $2.45 billion financier, the China Export-Import Bank, would simply seek to “wait out” the two-month provisional liquidation process and not seriously negotiate a commercial settlement.

Such a strategy would be designed to seek Mr Izmirlian’s final removal from Baha Mar via the November 2 winding-up petition hearing before the Supreme Court.

And, in any case, Mr D’Aguilar said Baha Mar’s principal would have to carefully “evaluate the commercial viability” of reaching any settlement with the Chinese given the breakdown in trust between the parties.

Asked by Tribune Business whether CCA and China Export-Import Bank might simply wait for the winding-up hearing to force Mr Izmirlian’s exit, Mr D’Aguilar replied: “They can do that and, to a certain degree, we feel they’ve been doing that all along: Waiting it out and complaining that Mr Izmirlian did not agree to their demands.

“Now they can go to the judge [Ian Winder] and say: ‘We don’t have a deal’.”

He added: “There are many theories out there as to the motivation of the Government. The official motivation is to get the project open as quickly as possible, but given their love affair with the Chinese there are many theories as to why they’re doing what they’re doing.

“It was frustrating to us that the Government couldn’t see we were being taken advantage of by CCA, as they missed all their deadlines with no consequences for doing so.

“We could never understand that: Why we were the bad guys, when we were just trying to get them up-to-date and finish on time.”

Tribune Business has reported before that the Christie administration’s dependence on China to come through on an investment ‘wish list’ discussed during the Prime Minister’s trip to Beijing earlier this year is likely driving its actions over Baha Mar.

The wisdom of the Government’s decision to ‘attack’ the developer/investor via multiple winding-up petitions, only some of which have been allowed to go forward, and oppose Baha Mar’s preferred Chapter 11 route to restructuring will only be determined in the long-term.

However, the immediate effect of the Delaware Bankruptcy Court’s decision to terminate Baha Mar’s Chapter 11 protection is that it hands the Government and Chinese a huge advantage in any negotiations with Mr Izmirlian.

Judge Kevin Carey’s verdict has drastically shrunk the number of cards in Mr Izmirlian’s hand, effectively backing him into a corner and enabling the Chinese to ‘squeeze’ Baha Mar into a much less favourable deal.

While Mr Izmirlian is a tough negotiator who will fight to the last, the Delaware ruling leaves him with a stark choice: Negotiate an unfavourable commercial deal with CCA and China Export-Import Bank, or face the prospect of losing your family’s $850-$900 million equity investment in Baha Mar.

The bank, as the secured creditor via a $2.45 billion debenture, also has the ability to appoint its own receiver for Baha Mar following the Chapter 11 dismissal. It is likely to hold off, though, to see if the provisional liquidation process bears fruit.

Mr D’Aguilar said Baha Mar’s principal now had to “evaluate the commercial viability” of seeking to reach a commercial agreement with CCA and the bank, particularly if the contractor still refused to commit to a completion date or financial penalties for missing it.

“Mr Izmirlian has to make some tough decisions, but I’m sure he will make them in light of the commercial viability of the project,” he told Tribune Business.

“One has to step back and evaluate: You are at an impasse with your contractor. Mr Izmirlian have to make that decision, evaluate that option, and make a decision on: Does it make commercial sense?

“This whole mess started because they [CCA] didn’t deliver the project on time. A hotel is not like building a wash house. If you are building a wash house and miss a completion date, it’s no big deal.

“But if you’re building a hotel and miss the date, you do enormous damage to the brand, and have a lot of pissed off people.”

CCA has previously argued that Baha Mar failed to allocate extra time and money for more than 1,000 construction and scope of works changes that it requested, blaming this for the missed deadlines and cost overruns.

Mr D’Aguilar, though, reiterated that CCA, unlike Baha Mar, had yet to present its own plan to move the project forward to construction completion.

“CCA works in its own way, does what it wants: Like it or lump it,” he added. “They have to be above board and transparent.

“If they can come up with a believable, transparent plan that they’re able to stand behind with their money as well as their mouth, then a dialogue could be had if it makes commercial sense. Only Mr Izmirlian can do that.”

He continued: “I always felt it was best to have the developer in charge of the project, not the bank and the contractor. This is the first super hotel that they’ve built in their history, and if we put them in running it, it’s a recipe for disaster.

“I really hope Mr Izmirlian stays on and finally works something out, but it has to make sense.”