The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Christie administration gave up $100 million in Stamp Duty on Baha Mar’s two ‘asset transfers’ in return for securing the project’s construction completion and Bahamian creditor payouts.

The ‘Heads of Terms’ between the former government and the China Export-Import Bank, released by the Prime Minister yesterday, confirmed that a multi-million sum in tax/investment incentives was granted in return for the $101 million to make local creditors whole.

“In consideration for the valuable concessions and consents that the Government will grant to China Export-Import Bank now (and to the ultimate purchaser of the project in the future), China Export-Import Bank has committed to making the capped sum of $101million unconditionally available in order to compensate Baha Mar’s unsecured creditors,” the Heads of Terms, unsealed by the Supreme Court on Thursday, state.

No monetary value is given for the tax concessions’ collective worth, but the Heads of Terms confirms that Baha Mar’s construction completion is VAT and import-duty free, while two transfers of its real estate assets do not attract Stamp Duty or the 7.5 per cent levy.

“The Government will waive Stamp Duty and VAT on the transfer of assets from the Baha Mar companies to the SPV Group,” the Heads of Terms state. The ‘SPV Group’ refers to the China Export-Import Bank’s Perfect Luck vehicle, and a similar ‘waiver’ has been granted for the second ‘transfer’ - primarily involving the project’s real estate assets - from Perfect Luck to the ultimate buyer, Chow Tai Fook Enterprises (CTFE).

While VAT on commercial property acquisitions can be ‘netted off’ against business expenses, the 2.5 per cent Stamp Duty that the Christie administration agreed to forego is a different matter.

Using a conservative $2 billion valuation for Baha Mar’s real estate assets, the two ‘transfers’ would have each generated around $50 million in Stamp Duty. The collective $100 million sum would have come in especially handy for the cash-strapped Public Treasury, given its $160 million payments ‘backlog’ that was exposed in the Budget.

This sum is almost equivalent to the $101 million provided by the China Export-Import Bank, and many observers will likely suggest this shows the Bahamian creditor payouts are effectively a wealth transfer from taxpayers.

Other highlights in the ‘Heads of Terms’ include:

• China Construction America (CCA), whose failure to complete Baha Mar on time and on budget sparked the project’s initial crisis, appears to have received what it wanted and more.

The Beijing-owned contractor was paid a $145 million remobilisation sum by September 15, 2016, last year. While some of this will likely have been used to pay its Bahamian sub-contractors, this sum is way more than the $75 million that Baha Mar’s original developer, Sarkis Izmirlian, claimed it was due at the time of the project’s Chapter 11 filing. It is also higher than the $130 million CCA itself claimed to be owed in June 2015.

In a further sign of the extent to which CCA’s interests have been protected throughout, the company was also granted up to 1,200 work permits to complete Baha Mar. This was despite previous claims by Mr Izmirlian that there were frequent manpower shortages, and the contractor never took up its previous 8,000 allocation.

China Export-Import Bank itself received 30 work permits as part of the ‘Heads of Terms’.

• The ‘Heads of Terms’ were amended on April 25, 2017, to allow further time for CTFE’s purchase to close.

The Government’s tax concessions were originally set to terminate if Baha Mar’s purchase was not closed within 13 months of the agreement’s August 22, 2016, signing.

That meant CTFE’s purchase had to close by November 22, 2016, this year, but the deal’s consummation is dependent on Baha Mar’s construction completion by CTFE.

The letter, signed by Creswell Sturrup, then-permanent secretary in the Prime Minister’s Office, extended the Baha Mar purchase closing to December 1,2017.

The same document also clarified the “reasonable endeavours” China Export-Import Bank has to make to show it is complying with the ‘Heads of Terms’, identifying this as a full payout to Bahamian creditors.

• The ‘Heads of Terms’ states that the Government “expects” Baha Mar’s Bahamian retail and restaurant tenants to retain their leases on “the same terms and conditions as currently exists”.

However, it falls short of a ‘cast iron’ guarantee, especially as the China Export-Import Bank is mandated only to “encourage” CTFE to do the same.

• The Government, having obtained the appointment of joint provisional liquidators, should have financed their costs as there were not enough assets left at Baha Mar to pay them. However, the Heads of Terms stipulate that the costs are being shared 50/50 with the China Export Import Bank.

It is unclear how the ‘Heads of Terms’ could be construed as containing commercially confidential information, or why they were sealed to - as Justice Ian Winder put it - “preserve the integrity” of the Baha Mar sales process.

Most of the figures relate to how the creditor payout process will work, with $51 million allocated to pay debts owed to Government entities and the former Baha Mar employees, and the remaining $50 million for other Bahamian creditors.

The National Insurance Board (NIB), Bahamas Telecommunications Company (BTC), Bahamas Power & Light (BPL) and the Water & Sewerage Corporation, along with outstanding occupancy taxes, were to be made whole up until October 31, 2015.

The total sum owed to Baha Mar employees was pegged at $8.7 million, along with $2.9 million in pension benefits that were deducted from their salaries.

As for the $50 million, Bahamian creditors - and local sub-contractors of foreign companies other than CCA - were to be made whole if owed less than $500,000. Those said to be owed more had to negotiate settlements with the claims committee. Any funds left over were to compensate foreign creditors.

“The valuable concessions that the Government has provided must redound to the benefit of the people of the Commonwealth of the Bahamas,” the ‘Heads of Terms’ said, “and it is therefore essential that the monies that China Export-Import Bank has agreed to make available for the settlement of unsecured creditors’ claims should primarily be paid to unsecured Bahamian creditors.”