The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government's $65m Grand Lucayan purchase is due to close on September 11, with the Hotel Corporation's chair pledging: "This is not going to be a haemorrhage of taxpayer funds."

Michael Scott, confirming the acquisition price remains the same as that agreed by former buyer, the Wynn Group, yesterday revealed to Tribune Business that the Government is setting up another special purpose vehicle (SPV) to purchase and own Freeport's "anchor" hotel property.

With KP Turnquest, deputy prime minister, previously telling this newspaper that the purchase will be financed by borrowing, the SPV structure will enable the Government to keep any debts incurred off its balance sheet.

The Christie administration previously employed the SPV structure to bail-out Bank of The Bahamas and purchase UBS House, and Mr Scott said of its use in the Grand Lucayan deal: "It will make it easier to sell the resort."

The well-known attorney confirmed he will become chairman of the SPV, but declined to comment further on the deal's specifics. However, this newspaper understands that others who have been recommended to serve on the Grand Lucayan SPV Board are hotelier Russell Miller; attorneys Terence Gape and Carey Leonard; Willie Moss; and Linda Turnquest from the Grand Bahama Shipyard.

All have strong Grand Bahama connections, and provide a combination of resort and legal expertise. An accountant is also being sought to round out the Board of Directors.

Well-placed Tribune Business sources speaking on condition of anonymity, revealed that the Government and Cheung Kong (CK) Property Holdings, which is effectively Hutchison Whampoa's real estate arm, have already agreed the purchase details.

"They've signed a contract. It's done. It closes on September 11," one source said, ahead of a site visit by the Prime Minister and Dionisio D'Aguilar, minister of tourism, to the Grand Lucayan property today.

Tribune Business understands that the Government has paid $10m upfront, with a further $20m due upon closing, and the $35m purchase price balance to be paid off in a series of $5m instalments over a period of three-and-a-half years.

Yet some elements in the Minnis administration are thought to be exploring whether the Government should take a tougher line with CK Property Holdings/Hutchison given Paul Wynn, the Wynn Group's chief executive, described as its "indifferent" attitude to the Grand Lucayan's plight and wider ramifications for Freeport's economy.

Tribune Business understands that the Hong Kong-based conglomerate received $80-$85m in insurance proceeds following Hurricane Matthew in October 2016 but, rather than reinvesting this in reopening and repairing the Grand Lucayan, simply pocketed the money in a similar fashion to what Driftwood Freeport did with the Royal Oasis in 2004.

Questions have also been raised internally within the Government as to whether CK Property Holdings/Hutchison is in violation of the 1997 Heads of Agreement for the Grand Lucayan, especially clauses that require it to maintain the resort as an "upper end, premium, first class resort".

With some taking a hard look at whether the Government has leverage it can exploit, there have also been suggestions that it should seek to purchase Grand Bahama International Airport from the Hutchison-controlled Freeport Harbour Company.

The airport's relatively high costs have frequently been cited as a deterrent to attracting airlines, and the Grand Lucayan's revival will require every bit of airlift Freeport can get. For that reason, the Grand Lucayan and airport are being eyed as a potential "package deal".

Mr Scott, though, would only confirm that the Government does not intend to finance repairs and restoration that could add up to $100m to its Grand Lucayan costs, as it bids to both minimise taxpayer exposure and quickly find a private buyer to take on the burden.

"It's a quasi bail-out," he told Tribune Business. "Buy, stabilise, keep some of the property open, keep some people employed and look for qualified investors with a plan and vision for restoration of the resort as the micro centre of Freeport.

"Harness private expertise to finance that restoration and get the resort going again. While I'm on the Board of that hotel, this is not going to be spending a lot of government money. The country cannot afford it. This is not going to be just turning on the spigots.

"This is not going to be a haemorrhage of government funds to keep the resort open," Mr Scott emphasised. "First of all, government should not be in the hotel business. I firmly, philosophically believe that. Second, the country cannot afford that expense.

"This is not going to be a financial haemorrhage, and is not going to be a wasteful use of money like under the previous administration."

Wynn Group, which withdrew from its acquisition bid last month, estimated that up to $55m may be required to repair and re-open the Grand Lucayan's closed sections. With pre-opening costs of $8-$9m, and an estimated $25m needed to rebuild airlift and for marketing support, the total cost involved was likely to exceed $150m when the purchase price is included.

With the cash-strapped Treasury unable to support such extensive liabilities, the Government is opting to keep the "status quo" in place while hoping to find a private sector buyer it can sell, or "flip", the Grand Lucayan to as rapidly as possible.

It is unclear, though, whether what some have described as "a patch job" will be enough to prevent further business closures and redundancies at the Port Lucaya Marketplace and other areas that depend on the hotel's guests. With the Breaker's Cay and former Memories properties closed, just 200 rooms at the Grand Lucayan's Lighthouse Pointe property remain open with around 400 staff employed.

Still, many Bahamians who remember the multi-million losses incurred by the Pindling administration's Hotel Corporation will likely be breathing a sigh of relief that the Government is seeking to limit its outlay on the Grand Lucayan.

Resorts are extremely capital intensive, and the Government's exposure would likely go well beyond $150m - money it will never recover - if it sought to re-open the resort and was forced to hold it for years if no buyer emerged. CK Property Holdings/Hutchison Whampoa is understood to have lost between $10-$20m per year at the Grand Lucayan on average.

Mr Scott yesterday promised that the SPV Board will "think out of the box" to resolve the situation, and rigorously scrutinise potential Grand Lucayan purchasers to prevent the Government "being burnt by fly-by-nights" as it has in the past.

"The Board I have recommended to the Government to appoint, we're going to deploy some lateral thinking in coming up with creative ideas in leveraging the investment concepts that are available internationally to take advantage of the potential of Freeport," he told Tribune Business.

"I don't think Hutchison were particularly creative in the way they ran that hotel. We've got to think out of the box on how that hotel can be properly positioned. We've got to look at it with fresh ideas and a fresh approach, and come at it with an open mind.

"The reason why that hotel was a loss leader for years, from speaking to people with much more experience in the industry than I do, was they did not have the experience to run a hotel of that size."

Pledging to secure the right buyer, Mr Scott said: "This is not an opportunity for someone like a Wynn to come in, spend a few dollars and flip it. There's got to be a vision and a plan. We're looking for a quality buyer who's going to invest in the vision for Grand Bahama.

"I'm very conscious of the fact that the Government has been burnt before by pie in the sky investors who were not properly vetted. The Board is going to be populated by private sector individuals that are experienced and very careful in vetting investors before they even get to Cabinet.

"We have got to go through this very carefully because the Government has been burnt several times. I don't want any more nightmares like that."