The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister yesterday said he was “on his knees” hoping the cruise lines’ Grand Bahama projects pull through, as he warned: “Government cannot rescue everyone from this crisis.”

Dionisio D’Aguilar, pictured, minister of tourism and aviation, acknowledged that both Carnival and Royal Caribbean Cruise Lines (RCCL) are likely to adopt a “wait and see” approach to those investments once the COVID-19 pandemic eases due to the major financial blow they have suffered.

Disclosing that the government “hasn’t heard anything yet” on either development, the minister said his “whole arms are crossed” in the hope both cruise lines will eventually proceed - albeit with some delay to construction and opening schedules - once the global health crisis has abated.

And, responding to suggestions that several Bahamian airlines may require a financial bail-out to resume operations once COVOID-19 is eliminated, Mr D’Aguilar said the government’s limited financial resources meant it would be “hard-pressed” to help all industries, businesses and persons likely to request such aid.

Pointing out that the government’s revenues have been “gutted” by both the tourism industry’s closure and wider national lockdown, he warned that while “everyone is going to come with their hand-out” once the pandemic ends it would be “very difficult to help everyone who wants to be helped”.

Calling on businesses and different sectors to “pool resources” to resuscitate themselves and the Bahamian economy, Mr D’Aguilar said The Bahamas simply lacked the ability and fiscal space to “borrow heap loads of money” and debt finance its way due to the likely onerous burden this will impose on current and future generations of taxpayers.

The minister conceded he was “scared” to inquire as to Carnival and Royal Caribbean’s plans for Grand Bahama after the global cruise industry was brought to its knees by a pandemic that has forced its total shutdown.

Carnival, a publicly-traded company that typically earns billions of dollars in annual profits, was forced to raise $4bn from an emergency bond issue as part of a $6bn package designed to stabilise its finances amid the COVID-19 turmoil.

Despite having investment grade status, the bond issue was managed by so-called “junk syndicate desks” and priced at a previously unheard-of 11.5 percent interest rate. As for Royal Caribbean, Standard & Poor’s (S&P) yesterday cut its credit rating to ‘BB’ and placed a “negative” outlook on the company.

These developments, among the many blows inflicted by COVID-19, are especially ill-timed for Grand Bahama’s long-moribund economy given that the separate investments by both major cruise lines were being relied upon as the catalysts to revive the island after almost 16 years in the doldrums.

The Grand Lucayan’s purchase by Holistica, the joint venture between Royal Caribbean and its ITM Group partner, is especially vulnerable to the COVID-19 crisis as the agreement was signed right before the US and other major world economies began shutting down.

The $300m deal is in the middle of a 90-day closing and transition period, and Heads of Agreement between the Government and major investors typically contain a “force majeure” clause that allows either party to cite unforeseen circumstances - such as a global pandemic - as the reason for their failure to perform, and walk away from the deal.

Royal Caribbean has to-date issued a vague statement affirming its commitment to The Bahamas, while adding that it was re-evaluating all projects in light of COVID-19’s economic fall-out. Carnival, too, was thought to be poised to start construction on its $200m Grand Port project that is also earmarked for Grand Bahama.

Mr D’Aguilar described the pandemic’s effects on the cruise industry as “heart-breaking”, but said the Government had received no communication from either cruise line on their Grand Bahama plans.

Asked whether he was ‘crossing his fingers’ over the cruise lines’ investments, he replied: “My whole arms are crossed. I’m on my knees hoping they come through. I’m scared to call them. It’s very, very unfortunate.

“We haven’t heard anything on the projects in Grand Bahama, but what I predict - and what I presume - is they’ll probably want to wait and see how their business comes back before they undertake any major international capital projects.

“The best case scenario is no delay and they go forward, but we don’t know how long COVID-19 is going to last in its current form. We’re in the middle of the surge and there’s no cure, so we don’t know how that will change travel patterns for every mode of transportation. We’re in uncharted territory. It’s a huge uphill battle.”

Mr D’Aguilar said the cruise lines’ situation was no different from that faced by every corporate boardroom across the globe, where once-mighty companies are assessing “what do we need to do to survive” amid the economic freeze produced by COVID-19.

Acknowledging that firms in virtually all industries will be assessing which projects should be delayed, deferred or cancelled, the minister argued that The Bahamas’ proximity to the major Florida cruise ports - especially Grand Bahama’s - meant this destination was likely best-placed to rebound quickest when cruise tourism starts up again.

With health concerns likely to dominate passenger psyche, he predicted that the three- and four-night cruises that The Bahamas thrives on - with multiple city and private island destinations - will be the first voyages to start as the ships remain close to home.

“What is happening to the cruise industry is heart-breaking,” Mr D’Aguilar told Tribune Business. “Overnight their business has evaporated, but they have proven themselves to be extremely resilient and profitable.

“I’m sure they’ve got some resources to run-off, and are probably getting their cash reserves together to prepare for the other side of the storm. Their image has probably been tarnished somewhat, and it’s going to take some rehabilitation to ensure those that cruise decide to take another cruise.

“I think The Bahamas is wonderfully positioned for that. I think at the outset people will want to stay close to home and go on short cruises, from Fort Lauderdale and Miami to The Bahamas and back, and we have plenty of options. We’ll be wonderfully positioned to take advantage.”

Mr D’Aguilar, though, warned domestic industries and businesses that the Government simply lacks the financial means to save all players from the COVID-19 fall-out despite the more than $100m offered to-date in the form of tax credits/deferrals, small business loans, employee benefits and other forms of social assistance.

Responding to suggestions by Anthony K Hamilton, president of the Bahamas Association of Air Transport Operators, that some players would require financial assistance to survive, he added: “The Government has been gutted. Revenue has been completely gutted by the total evaporation in the tourism industry.

“Unfortunately this is the hurricane, and in a typical hurricane there’s a reduction in revenue and increase in demand for government services.” Acknowledging that many Bahamians were likely watching the US government’s $2tr stimulus package on TV, Mr D’Aguilar said The Bahamas’ size and fiscal constraints prevented a similar proportionate response.

“We are limited in our ability to respond to all the people that need help,” he told Tribune Business. “People need to come together on their own to pool resources to resuscitate industries that are going to be significantly damaged by this event.

“The Government is going to be hard-pressed to help everyone who wants to be helped. I’m sure as we come out of this everyone is going to come with their hand out, asking for something. It’s going to be very difficult for the Government of The Bahamas, with very limited capacity, to help everyone who wants to be helped.

“I’m certainly not in a position to commit scarce government resources to bailing out an industry. They have to go forward on the premise that they will not be bailed out. They can lobby for it, and if their case is seen to be compelling - and I’m sure there will lots of compelling cases - the Government will be guided by its policies and amount of cash in the drawer.”

Pointing out that the Government earned $2.5bn worth of revenues “in a good year”, Mr D’Aguilar said the sheer size of the US economy meant it would always attract willing lenders whereas the same capital will be far more cautious in how it views The Bahamas.

“If we go out and borrow heap loads of money, they’re going to want to know what our plan is to repay it,” he added, “and the Bahamian people are not going to like the terms and conditions they may offer. These are unprecedented times and we’d be kidding ourselves if we knew what all the answers were to anything.”