The Tribune

* ITM/Royal Caribbean won't buy hotel without harbour

* Gov't gave up Hutchison leverage via 20-year tax break

* December 10 targeted to close critical $300m investment

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Grand Lucayan's sale will not close until Royal Caribbean and its joint venture partner have sealed the deal for Freeport Harbour, a Cabinet minister disclosed to Tribune Business.

Dionisio D'Aguilar, minister of tourism and aviation, confirmed that ITM Group and the cruise line want to seal "the entire transaction at once" to protect their commercial interests and not hand an advantage to either Freeport Harbour Company or the Government.

"We would obviously like to conclude the entire transaction at the same time," Mr D'Aguilar told this newspaper. "So, yes, ITM wants to conclude the entire transaction at once. They don't want to close on one part of the deal and the other part of the deal is still pending."

The minister's confirmation adds another twist to long-running negotiations that are attempting to get an agreement perceived as vital to Freeport's economic and tourism revival over the line amid the devastation inflicted by the COVID-19 pandemic.

The ITM Group/Royal Caribbean joint venture, known as Holistica, is understandably reluctant to close the Grand Lucayan's purchase without first sealing an agreement with Freeport Harbour Company, and its 50 percent shareholder and manager, Hutchison Whampoa.

Securing the hotel without the harbour, and the proposed additional cruise berths and water-based adventure theme park, would hand the advantage to Hutchison. Knowing that ITM/Royal Caribbean will now be desperate to tie down terms for the harbour to complement the Grand Lucayan, Hutchison could seek to alter the deal to its commercial advantage and extract extra concessions from the joint venture.

Thus ITM/Royal Caribbean's interest in sealing both aspects of its $300m project simultaneously. However, sources familiar with developments, speaking on condition of anonymity, argued that the Government has done too little to push Freeport Harbour Company and Hutchison to close their end of a complex deal.

And Tribune Business can reveal that the Government has little negotiating leverage with Hutchison Whampoa and its Freeport-based entities due to the trade-off deal struck by the former Christie administration to secure Carnival's Grand Bahama cruise port investment.

An "agreement for waiver of exclusivity", signed on May 3, 2016, saw Freeport Harbour Company agree to give up the monopoly it has held on the ownership/operation of all cruise ports, offshore cruise moorings and container ports on Grand Bahama since June 28, 1994.

This removed a major obstacle to Carnival's investment but, in return, the Christie administration gave up its best leverage/negotiating tool by giving most of Hutchison Whampoa's Freeport entities - the Freeport Harbour Company, Grand Bahama Airport Company and, most crucially, Grand Bahama Development Company (DevCo)- a 20-year real property tax break through to 2036.

While DevCo's concession was made conditional on it supplying a master plan for development of its 80,000 acre holdings, no administration has held it to account for this obligation either. The absence of real property tax means it faces no 'carrying costs' for its assets until 2036, effectively robbing the Government of critical negotiating leverage to push it to develop its real estate portfolio.

The waiver, which bears the signature of Godfrey Smith, Hutchison's top Freeport executive and head of the Harbour Company, also exempts the Hutchison-controlled entities from taxes on income/earnings, capital gains and capital appreciation through 2036.

Sources familiar with the Grand Lucayan negotiations, speaking on condition of anonymity, said the Government - after many missed deal closing targets - was now eyeing December 10, 2020, to seal an agreement that was signed in early March 2020 when the COVID-19 pandemic first hit.

Mr D'Aguilar, acknowledging that the talks have involved "many twists and turns", also conceded: "It's still very much a work in progress." He referred Tribune Business to Kwasi Thompson, the temporarily-resigned minister of state for Grand Bahama, for further comment but he could not be contacted despite multiple attempts yesterday.

Some contacts, though, are voicing concern that the original Grand Lucayan deal has been "watered down" amid a COVID-19 environment that has shuttered the global cruise industry and inflicted major hardship on The Bahamas.

One source argued that the March 2020 agreement has been diluted to the point where the hotel will basically be used to support Royal Caribbean's return and its cruise ship business, rather than provide an 'anchor' for Freeport's revival as a stopover destination.

"The deal keeps getting watered down," one contact, speaking on condition of anonymity, said. "Some say it no longer resembles what was done in March 2020. They [Holistica] are using the hotel as a prop to support their cruise business. It's good for the cruise ship business, but does not do anything for Port Lucaya and tourism on Grand Bahama.

"The Government must know when it's time to hold and when it's time to fold, and get up from the table and walk away. My understanding is that there's nothing in it for the hotel, and they are almost giving it away. They have beaten it into submission."

Another well-placed source, also speaking on condition of anonymity, confirmed the targeted December close but confirmed that "a lot of conditions" were being attached by ITM/Royal Caribbean including the project's revised development timelines going forward.

This is in line with the Prime Minister's recent House of Assembly speech, in which Dr Hubert Minnis said: "ITM and Royal Caribbean, as a joint venture partnership Holistica, have indicated their intention to carry out their investment in the Grand Lucayan project and redevelopment of the cruise port.

"The developer has proposed an amended phased approach to the development which is presently under review by the Government." The source said the joint venture, due to the delays caused by COVID-19 and the cruise industry's closure, was now looking at a 2021 construction start and two-year build-out that will take completion into 2023.

"There's no sense in opening at this time if we don't have an airport," they added, suggesting that ITM/Royal Caribbean is the only group that can undertake the tourism transformation that Freeport needs.

"Royal Caribbean is the only group that can pull this off in a zero tourism town and zero airport town," the source said. "We may as well be realistic. It's going to take three years. They're not going to open the hotel with no cruise ship and no airport.

"The Government is looking at those dates because it's being realistic. It's not going to get anyone to buy the hotel and repair it now. If you buy the hotel, who's coming? December is certainly being pushed as the Government would like them to complete the purchase of the hotel and take it off their hands, so they can say they've closed the deal."