The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s sale must not be “scott free” of the normal 10 per cent ‘transfer tax’, the Opposition’s deputy leader demanded yesterday, suggesting such revenues could “more than compensate” for Hurricane Matthew relief costs.

K P Turnquest told Tribune Business he was “very concerned” that the Government had agreed to totally waive the mixture of Stamp Duty and Value-Added Tax (VAT) that would normally be payable on the sale of Baha Mar’s assets to Perfect Luck Holdings.

The latter entity is the special purpose vehicle (SPV) created by the China Export-Import Bank to purchase Baha Mar from its Deloitte & Touche receivers - the first step in the ‘strategy’ to complete Baha Mar’s construction and make the project ‘sale ready’.

Mr Turnquest, though, said the Bahamas needed the potential tax revenues generated by the ‘SPV purchase’ more than ever, given the $600 million in damages that the Government estimates were inflicted by Matthew.

Urging the Christie administration to waive no more than 50 per cent of the ‘due transfer’ tax, Mr Turnquest said that to completely forego this revenue would be akin to “cutting your nose off to spite your face”, given Matthew’s impositions.

He estimated that the ‘SPV sale’, together with Baha Mar’s eventual sale to its ‘ultimate purchaser’, could generate between $600-$700 million in transfer tax revenue combined - more than enough to cover estimated restoration costs.

Tribune Business’s calculations suggest that while the FNM deputy leader’s estimates may be a little high, a nine-figure sum would be due to the Public Treasury on both transactions - going a long way to easing Matthew’s financial burden.

“We just went out and borrowed $150 million for hurricane relief,” Mr Turnquest told Tribune Business, “and we have this transaction - the sale of this entity [Baha Mar] - from the receivers to this Perfect Luck entity.

“As we look for revenue to assist with this rebuilding effort, one has to question if Stamp Tax (transfer tax) is being collected. If so, how much, and if it’s not being collected, how much is being waived in terms of concessions.”

Basing his calculations on a $3 billion valuation for Baha Mar’s real estate assets, Mr Turnquest suggested that the 10 per cent ‘transfer tax’, made up of 7.5 per cent VAT and 2.5 per cent Stamp Duty, could generate $300 million in much-needed revenue from the ‘SPV sale’.

He described this as “a significant little chunk of change”, and said this sum could be “doubled” when Baha Mar is sold to its ultimate purchaser - for a price likely in excess of that paid by the SPV.

“It more than compensates for hurricane relief,” Mr Turnquest told this newspaper of his $600-$700 million estimate.

Tribune Business’s own calculation, even allowing for the fact that bids to purchase Baha Mar have “not come anywhere near” to paying off the $2.45 billion debt owed to the China Export-Import Bank, is based on buyer offers likely exceeding the $1 billion mark.

Using the latter figure, the Public Treasury would still be looking at a $100 million-plus windfall - extremely valuable in limiting Matthew’s financial impact, and the fall-out for the $6.778 billion national debt and fiscal deficit.

Tribune Business sources close to the situation at Baha Mar, and familiar with details relating to the construction completion agreement and ultimate sale plans, yesterday confirmed that ‘transfer tax’ on the SPV sale had been addressed in the Government’s deal with the China Export-Import Bank.

“That issue was addressed in the Heads of Terms, and that’s part of what was sealed,” one source told Tribune Business, declining to say any more.

Another, also requesting anonymity, suggested that the Government had agreed to waive the ‘transfer tax’ for the SPV sale, so as to facilitate Baha Mar’s completion and opening. It is also unclear whether there are legal ‘loopholes’ that would enable the sale to avoid the tax.

While taxes are unlikely to be paid for completing Baha Mar, it was also suggested that the issue of ‘transfer tax’ on the property’s ultimate sale had not yet been determined, as this was a matter for the final buyer to negotiate with the Government.

Another contact suggested that the Baha Mar-related tax demands, coming in Hurricane Matthew’s wake, were “short sighted” as the burden would have acted as a disincentive for China Export-Import Bank to complete the project’s construction.

With the Chinese state-owned institution already financing obligations that are not its own, such as paying $100 million to settle the claims of Baha Mar’s Bahamian creditors, the imposition of such a ‘transfer tax’ burden could have acted as a ‘deal breaker’.

Unwilling to finance such a sum, the China Export-Import Bank could have elected to ‘sit’ on Baha Mar and do nothing with the property, depriving the Bahamian economy of thousands of jobs, increased tourist traffic and numerous spin-offs.

Dionisio D’Aguilar, a key ally of Sarkis Izmirlian, Baha Mar’s original developer, also expressed scepticism that ‘transfer tax’ would be paid on the ‘SPV sale’.

“Let me tell you something: The Chinese ain’t going to pay that,” he told Tribune Business. “You can rest assured that, as good as I’m sitting in this chair, they are not going to pay that; they’re not going to pay transfer tax. This is all part of the sweet deal from the Government.”

Mr D’Aguilar then argued that the extent of the potential ‘tax break’ made recent Chinese donations to the Matthew relief effort, in the thousands of dollars, “laughable”.

There is also precedent for the Government to either waive the ‘transfer tax’ entirely, or agree a lower, concessionary rate to facilitate the sale of Bahamas-based mega resorts.

The former Ingraham administration is believed to have done this for the debt-for-equity swap that led to Brookfield Asset Management taking over the Atlantis resort, given that the $200-$300 million sum due to the Public Treasury will have acted as an impediment to that deal.

However, setting aside Hurricane Matthew’s impact, the tax concerns are being fed by the fact that details of the Government’s agreement with the China Export-Import Bank remain sealed and confidential under Orders from the Supreme Court.

The Christie administration is likely to come under renewed pressure to be more transparent over the Baha Mar agreement’s details, especially given the burden Matthew threatens to place on the Bahamian people.

“For the Government to give up totally, if they have, Stamp Duty and VAT revenue on this transfer, would be incredibly generous for a small country and vulnerable economy like ours,” Mr Turnquest told Tribune Business yesterday.

“One can understand that at times you have to make adjustments and tweaks, but it should not be a 100 per cent concession to the total burden and detriment of the Bahamian people. That cannot be scott free. That’s not in the interests of the Bahamian people.”

Suggesting that this was akin to “chopping off your nose to spite your face” in Matthew’s aftermath, with the Government hoping to make-up any revenue concessions after Baha Mar opens, Mr Turnquest called for a “split”.

He suggested that the China Export-Import Bank’s SPV pay 50 per cent of what was due, suggesting this would balance the Treasury’s requirements with the “urgent need” to get Baha Mar going.

The Opposition’s deputy leader then lamented the short-termism and lack of planning over how the Bahamas dealt with its economy, suggesting this had been exposed by both Baha Mar and Hurricane Matthew.

“It’s unfortunate that we manage our economy and finances by the seat of our pants, without giving consideration to hurricanes and other disasters that could happen,” Mr Turnquest told Tribune Business.

“We are operating right now with tremendous national debt and recurrent deficits despite the introduction of VAT.”

He added: “This is a sad indictment of all of us as a country, as it indicates that we’re prepared to sacrifice the long-term well-being of our economy and people, and the fight for a sustainable economy, for short-term gain.

“We’ve got to look at, objectively and holistically, how we manage these kinds of situations, ensuring that long-term benefit for the Bahamian people is sustainable and fair for all concerned.”