The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s secured creditor has acquired the project from its receivers for a sum “substantially higher” than that offered by the top bidder, in order to facilitate its construction completion.

The pathway to the $3.5 billion development’s completion, and eventual opening, is disclosed by Supreme Court Justice, Ian Winder, who reveals that Baha Mar will be sold ‘twice’.

The first sale is from the Deloitte & Touche receivers to a special purpose vehicle (SPV) owned by China Export-Import Bank, the project’s $2.45 billion secured creditor.

This deal, which values Baha Mar on an ‘as is’ basis, meaning the present value of its incomplete real estate assets, will move the Cable Beach resort development out of receivership.

Justice Winder, in his September 27, 2016, ruling said China Export-Import Bank was only willing to invest “hundreds of millions of dollars” in completing Baha Mar if the project was removed from receivership.

Once Baha Mar has been completed, under the ownership of the bank’s SPV, the ‘second’ or final sale will occur.

This will see a controlling interest in the SPV being sold by China Export-Import Bank to the intended purchaser.

Justice Winder’s ruling does not confirm the identity of Baha Mar’s prospective buyer, but it reveals that its purchase price “remained lower” than that offered by the China Export-Import Bank-controlled SPV to the receivers.

Other revelations contained in Justice Winder’s ruling include:

• The Baha Mar ‘buyer’ is a group who emerged “outside the bidding process” set up by Deloitte & Touche for the project’s sale.

The latest suitor approached the receivers, and made a non-binding offer, after the latter were unable to agree terms with the ‘preferred bidder’ that emerged from the formal sales process.

Out of 17 groups who expressed initial interest in acquiring Baha Mar, just five submitted bids. And of those five, just two were invited to participate in the second round. Ultimately, both these bids were also rejected.

• The China Export-Import Bank’s SPV “requested”, and the receivers have agreed to, the purchase of Baha Mar’s $192 million claim against China State Construction Engineering Corporation (CSCEC), parent of the project’s general contractor.

Baha Mar’s original developer, Sarkis Izmirlian, brought this claim in the UK High Court in a bid to enforce CSCEC’s guarantee that China Construction America (CCA) would hit its completion deadlines.

The SPV’s purchase of this claim is likely to infuriate Mr Izmirlian, who will probably view it as a ‘cosy stitch-up’ between the two Chinese government entities that further protects CCA’s interests.

He previously petitioned the Supreme Court to allow his Granite Ventures vehicle, or Baha Mar’s joint provisional liquidators, to acquire the rights to the $192 million claim, arguing that it represented one of the best recovery sources for unsecured creditors.

This, though, was rejected by Justice Winder on the grounds that Granite Ventures had no standing to purchase the claim.

• The Government’s agreement with the China Export-Import Bank includes the granting of two sets of investment incentives - one for the bank’s SPV, and the other for the ultimate purchaser.

The two sides’ agreement, or Heads of Terms, commits the China Export-Import Bank to selling Baha Mar, via disposing of its SPV ownership, in order to obtain the Government’s investment incentives.

No dollar figure was provided by Justice Winder for the value of these incentives.

His judgment came after the receivers, including Raymond Winder, Deloitte & Touche (Bahamas) managing partner, sought approval for the transactions that would lead to Baha Mar’s completion.

Given that they were appointed by the China Export-Import Bank, whose SPV is buying Baha Mar from them, the receivers wanted the Supreme Court’s protection from any allegation that they were engaged in “self-dealing” with a related party.

In other words, they wanted Justice Winder’s affirmation that they had acted fairly, and obtained the best possible price for Baha Mar’s assets.

Justice Winder, who said Deloitte & Touche had the power to act as they proposed, as long as they obeyed the law, gave his blessing to the ‘two-stage’ Baha Mar sales process and SPV transaction.

“I am satisfied that it does not offend the fair dealing/self-dealing rule,” he concluded. “Even if I am wrong as to whether there is an infringement of the fair dealing or self-dealing rule, I would nonetheless have sanctioned the sale to the SPV as it is manifestly in the best interest of the stakeholders involved that the transaction be sanctioned.”

Justice Winder said his ruling was based on the sum offered by the SPV being “the best price obtainable under the circumstances”.

He added that China Export-Import Bank, as the secured creditor, was the only entity with a credible “economic interest” in Baha Mar, given that all purchase offers were far below the $2.45 billion owed to it.

Both the Government and the joint provisional liquidators, including Bahamian accountant, Ed Rahming, did not oppose the SPV transaction and sale, with Justice Winder citing the payment of unsecured creditors as another factor behind his decision.

Detailing the background to the Baha Mar sales process, Justice Winder said Deloitte & Touche engaged Colliers, the Canadian-headquartered international realtor, to market the project to potential purchasers.

A ‘teaser’ document was sent out to more than 7,000 potential purchasers, including real estate developers, high net worth individuals, hotel and casino operators/developers, and financial bidders such as hedge and mutual funds, private equity groups and investment/pension firms.

Baha Mar was also advertised in the major US, European, Canadian and Asian newspapers, including the Wall Street Journal, Financial Times and China Daily.

Just five of the 17 groups expressing initial interest ultimately submitted bids, and only two of these were invited to participate in the second round.

“The remaining bidders were rejected for a variety of reasons, which included their offers being too low, a requirement for financing from China Export-Import Bank, a lack of due diligence and/or the receivers’ concerns about the bidder’s financial capabilities,” Justice Winder said.

The two ‘final’ bidders were joined by a third bid, from a group previously rejected, and the ‘preferred bidder’ offered a sum that “represented the highest present value obtainable”.

This offer, though, was dependent on a complete Baha Mar being delivered.

“According to the joint receiver managers, during the marketing process and in the course of the process of selecting a final bidder, it became apparent that any sale to maximise the realisation value of the secured assets [Baha Mar] would need to be done on the basis that the project was delivered completed,” Justice Winder said.

“‘As is’ offers, in comparison to the offers for the completed project, were severely depressed.”

Both the receivers and the China Export-Import Bank then “independently reached the conclusion” that it was not feasible to complete Baha Mar’s construction if the development companies remained in receivership.

“China Export-Import Bank was unwilling to invest, reputed to be hundreds of millions of dollars, in the completion of the resort whilst in receivership, and carrying the stigma and legal restrictions associated with a company in receivership,” Justice Winder said.

“China Export-Import Bank informed the receiver/managers that it was prepared to finance the completion of the project, but only if the assets were no longer subject to the receivership.”

This, according to Mr Winder, led to the receivers and China Export-Import Bank developing the SPV plan, whereby the latter would be beneficially owned by the bank.

The SPV was to make a bid for the ‘secured assets’ (Baha Mar), and then complete the project with financing provided by the China Export-Import Bank, prior to selling the development to the ultimate buyer.

It is unclear whether the SPV referred to in the judgment is Perfect Luck Claims Ltd, the entity to which all Baha Mar’s Bahamian creditors must assign their claims in order to receive payment.

However, the judgment confirms that the SPV’s Baha Mar ‘purchase price’ is its acquisition “of a large amount of debt owed by the Baha Mar companies to China Export-Import Bank”.

As a result, one source told Tribune Business that the SPV deal was another ‘smoke and mirrors’ arrangement that would allow the China Export-Import Bank to shift its enormous Baha Mar liabilities ‘off balance sheet’, along with any loss it may incur on an eventual sale.