The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Democratic National Alliance’s (DNA) leader yesterday warned it is now “more likely” that the Bahamas will be downgraded to ‘junk’ credit status, due to investor predictions that Baha Mar will not fully open until winter 2017 at the earliest.

Branville McCartney told Tribune Business that the continuing ‘standstill’ at the $3.5 billion development, coupled with the ‘opening date’ estimate given by Sir Sol Kerzner’s bid partner, were exactly what Standard & Poor’s (S&P) had warned would lead to a further rating downgrade.

Confessing that he was “praying to the Almighty” that such a scenario was avoided, Mr McCartney said there would be “a significant trickle down effect” felt by every Bahamian if S&P followed through with its warning.

“It is more likely now that our ratings will drop,” the DNA leader conceded to Tribune Business.

“I pray to the Almighty that it doesn’t. The reality is, and we have to be realistic about it, given what was said previously by S&P about Baha Mar being up and running, the likelihood of our rating being downgraded is very high.”

S&P downgraded the Bahamas’ sovereign credit rating just one notch above so called ‘junk’ status on August 25 last year, citing the then-dispute between Baha Mar’s developer and its Chinese partners as a key factor in the decision.

The rating agency also warned there was greater than “a one-in-three” chance that it could slash the Bahamas’ creditworthiness again within the next six months to two years.

S&P confirmed that key factors set to weigh heavily on any such move included not just the outcome of the Baha Mar impasse, but also the Christie administration’s handling of the matter.

With Baha Mar’s fate, and progress towards opening and completion, far from resolved, the door to a ‘junk’ status is likely still open as far as S&P is concerned.

Acknowledging this, Mr McCartney yesterday said that the Bahamas’ debt costs, and associated interest payments, would automatically increase if it lost its ‘investment grade’ rating.

With debt servicing (interest and principal repayments) already the largest line item in the Budget, consuming around $260 million or 15 per cent of the Government’s total revenue, the DNA leader warned that another downgrade would suck more money away from essential public services.

This, Mr McCartney said, would disadvantage all Bahamians and residents.

He added that should S&P make good on its August 2015 warning, it would send a negative message to both Bahamian and international investors, implying that the Government was not properly managing the Bahamas’ fiscal affairs.

“That’s very concerning to say the least, on terms of the country’s payments,” Mr McCartney said of the potential fiscal impact from a downgrade.

“The amount of interest the country will have to pay will go up. Investors looking into this will be very concerned, and business persons in the country must be very concerned as well.

“It will have a trickle down effect on everything we do, the way we do business locally and internationally. It’s putting our country on a very, very slippery slope.”

Should a downgrade occur, and result in increased interest costs, Mr McCartney said the Government would have less funds available to fund the likes of education, health, social services and the security/anti-crime forces.

“All essential services, the investment in them will be reduced,” the DNA leader warned. “We will have to pay more interest on our loans, and we don’t have sufficient now being invested in these services.”

He was speaking after Sir Sol’s joint venture partner on their Baha Mar bid, Andrew Farkas, told Tribune Business that Thanksgiving 2017 is likely the earliest date that Baha Mar can be fully open and operational.

Mr Farkas said construction at Baha Mar could resume in June 2016 if a deal could be struck now, with physical completion of the property and all essential pre-opening activities concluded in 12 months.

Mr Farkas, though, said any new Baha Mar owner would likely elect to reduce “negative cash flow” by postponing Baha Mar’s full opening from the traditionally ‘slow’ summer to the peak 2017 winter tourism season - Thanksgiving and Christmas.

These predictions align with some of the circumstances that S&P last year warned would result in a further downgrade of the Bahamas’ sovereign creditworthiness.

“Not only do we see the completion of construction of this $3.5 billion mega-resort being delayed, but we also expect that bookings will take longer to fill the complex once it does open, given the reputational damage to the resort’s brand as well as the time needed to obtain new airlift capacity for the resort,” S&P said las August.

Confirming then that it was maintaining a negative outlook on the Bahamas, S&P said: “The negative outlook reflects our view that there is a greater than one-in-three likelihood that we could again lower our ratings on the Bahamas within six to 24 months.

“We could lower our ratings if the Baha Mar proceedings have knock-on effects on the island’s growth prospects, fiscal accounts, or external position beyond our current estimates.

“We could also lower our ratings if the handling of the Baha Mar project, and its wider implications, leads us to reassess our view of the Bahamas’ institutional settings, which we currently view as a rating strength.”

All these issues will ‘be in play’ as far as S&P is concerned. Michael Halkitis, minister of state for finance, recently revealed to Tribune Business that the Government plans to meet with the rating agency imminently, in a bid to stave off any further downgrade.

He emphasised the Christie administration’s belief that the attainment of its key fiscal targets, notwithstanding the Baha Mar dispute, merited more consideration by S&P and were justification for maintaining the Bahamas’ current rating.

Mr McCartney, meanwhile, called for a non-partisan approach involving the “best financial minds” in the Bahamas to “look at the financial status of our country and get it turned around”.

“We need to get the politics out of it,” he told Tribune Business. “I know any times we see it through politics, but what the PLP and FNM have been doing is not working.

“We need to move our country and economic outlook to a better state. We can’t be playing around with what we have now. The PLP have been in charge, the FNM have been in charge, and they can’t fix our problems. They can’t fix it; they can’t fix it.”