The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s value is declining at a rate of $6 million per month, a Supreme Court judge has revealed, with none of the purchase offers “anywhere near” to making its Chinese secured creditor ‘whole’.

Justice Ian Winder disclosed the alarming extent of Baha Mar’s “depreciation” in a September 27, 2016, ruling, which sanctioned the process set out by the China Export-Import Bank and its Deloitte & Touche receivers for the project’s completion and ultimate sale.

Finding that this process did not amount to “self-dealing” by either the receivers or the Chinese state-owned bank, Justice Winder revealed: “As the project continues in receivership, in its unfinished state, it depreciates at a rate of $6 million per month.”

Based on this figure, and given that the receivers have been in place since late October 2015, it is possible that Baha Mar’s value has depreciated by some $66 million as a result of the project being incomplete, unoccupied and unused.

And this figure could be even higher, were the months between the late June 2015 Chapter 11 bankruptcy protection filing and Deloitte & Touche’s appointment factored into the calculations.

Either way, Justice Winder’s ruling shows that it is in the interests of all parties, including the Bahamian people’s, for Baha Mar to be completed and opened as rapidly as possible.

And he also confirmed what most observers have long suggested, namely that the China Export-Import Bank’s prospects of being ‘made whole, as Baha Mar’s secured $2.45 billion creditor, are remote to non-existent - unless a ‘sweetheart’ deal can be struck with a friendly Chinese purchaser.

“All of the independent evidence points to the unassailable fact that the project is deep under water,” Justice Winder wrote.

“None of the appraisals, nor the bids received, go anywhere near to extinguishing the debt due to China Export-Import Bank, which clearly has outpaced the project’s market value considerably.”

Justice Winder added that there was “no equity in the project” that would revert to its original developer, Sarkis Izmirlian, from a sale, while all unsecured creditors “can expect nothing from” the proceeds either.

Hence the Christie administration’s eagerness for the Bahamian contractors, vendors and former Baha Mar employees to be paid what is owed to them by the China Export-Import Bank and its Perfect Luck Claims Ltd vehicle.

Justice Winder’s ruling indicates that the Government made approval of Baha Mar’s sale to Perfect Luck Claims Ltd (see other article on Page 1B) conditional on all Bahamian creditors being compensated.

“The collateral arrangements between the China Export-Import and the Government of the Bahamas, entitled Heads of Terms, which were provided to the court (in a sealed envelope) will provide for the payment of a significant number of creditors (I am told approximately 94 per cent), who would otherwise likely not recover anything from their claims but for the approval of this transaction,” Justice Winder wrote.

“This will entail an additional and enormous outlay of funds on the part of the SPV, separate and apart from the transaction price.”

Tribune Business previously revealed that the China Export-Import Bank, through Perfect Luck Claims Ltd, is making around $100 million available to compensate Bahamian creditors in return for the right to acquire their claims against Baha Mar.

This newspaper today is also reporting how the Baha Mar solution involves a two-stage sales process, with the first sale being the purchase of the project’s assets by the China Export-Import Bank’s special purpose vehicle (SPV).

Justice Winder’s ruling discloses that the SPV’s offer, which is based on the ‘as is’ value of Baha Mar’s real estate assets, is “by far the highest price” offered to the receivers.

“It significantly exceeded the highest bid,” he added.

No financial figures were disclosed in Justice Winder’s ruling, but Brian Simms QC, the Lennox Paton partner who represents the Chinese bank and the receivers, told the court that the sum offered by the SPV was “near the headline offer” submitted by the leading bidders.

While the SPV’s ‘price’ is really the acquisition of debts owed by Baha Mar to the China Export-Import Bank, Mr Simms said this was “substantially higher than the preferred bidder’s bid when the cost of construction is subtracted.

“The SPV’s bid also greatly exceeds the appraised value of the project on an ‘as is’ basis,” the judgment quoted Mr Simms as saying.

Justice Winder then revealed that the receivers had been “unable to come to terms” with the preferred bidder they had identified, ultimately turning to an entity (unidentifed in the judgment) that approached them “outside of the sales process” as the prospective purchaser.

And Deloitte & Touche has agreed, at the request of the China Export-Import Bank and its SPV, to sell to the latter Baha Mar’s $192 million legal claim against the project contractor and its parent, China State Construction Engineering Corporation.

To justify this, the receivers alleged that there was “legal uncertainty” as to whether the claim would survive the project’s completion, and argued that it was “improbable” they could obtain a larger sum by selling the rights to these claims.

“By obtaining a sales price for the completed project from the SPV, the receiver/managers have effectively procured an offer which is far in excess of what the project could have commanded,” Justice Winder quoted them as saying.

“A separate sale of the guarantee claim and the construction claims against CCA could never, in the face of CCA’s counterclaim, recover anywhere near those figures.”

Deloitte & Touche also revealed that the price being paid by the SPV for the litigation claim rights would be tied to a further valuation conducted by someone appointed by the receivers.

“Any additional consideration will be at the upper end of that valuation if it does, in fact, exceed a minimum purchase price for those claims,” Justice Winder said, agreeing with the receivers that the SPV was offering “the best price which could be obtained” - especially since it is also acquiring the rights to construction contract with CCA.