The Tribune

• Then-Gov’t acted as closure would ‘sink GB’

• Threat by investor ‘playing hardball’ was real

• ‘Should ex-owner still enjoy HCA tax breaks?’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government had no choice but to acquire the Grand Lucayan resort because its threatened closure “had the potential to sink Grand Bahama”, the former deputy prime minister argued yesterday.

K P Turnquest, in an impassioned defence at the Grand Bahama Business Outlook conference, pushed back at suggestions that the former Minnis administration had “bailed out” Hutchison Whampoa by relieving it of two loss-making assets - the resort and Grand Bahama International Airport - while letting the multi-billion conglomerate walk away with millions of dollars in Hurricane Dorian insurance proceeds over the latter deal.

Branding such a description of the $65m Grand Lucayan purchase as “a bit over the top”, he argued that the Government “did not have the luxury of sitting on the sidelines” when confronted with a resort owner that was “playing hardball” in summer 2018 over the hotel’s future.

Affirming that “the threat to mothball the entire property was real”, Mr Turnquest said the Government’s intervention was critical to prevent a second Royal Oasis-type situation where Freeport’s two largest resort properties closed indefinitely and took much of Grand Bahama’s tourism economy with it.

Appearing in a panel discussion with other former Grand Bahama Chamber of Commerce presidents, he hit back after one of his successors, moderator Kevin Seymour, questioned whether Hutchison Whampoa should continue to enjoy “significant” tax breaks and incentives on its remaining Freeport assets despite walking away from its responsibilities at the Grand Lucayan and airport by effectively dumping these assets on the Bahamian taxpayer.

Suggesting that the Hong Kong-based conglomerate had “abandoned” these ventures, Mr Seymour challenged: “Do you believe the Government of The Bahamas should have bailed out this private investor who continues to enjoy significant concessions under the Hawksbill Creek Agreement regarding its investments in Grand Bahama Development Company (DevCo), Freeport Container Port and the Freeport Harbour Company.”

In response, Mr Turnquest said: “The reality is to term it a bail-out is a bit over-the-top. The fact is there was an asset sitting there that had the potential to stimulate Grand Bahama but, by its closure, had the potential to sink Grand Bahama. The Government of the day decided to take a chance and acquire that asset, and we negotiated with respect to that.

“Hutchison Whampoa, whatever you may think of them, had invested many millions of dollars in the property, both human resources support and physical infrastructure. They had lost a lot of money on that property. In a dynamic free market they ought to suffer that loss on the chin.”

Successive governments, though, had for years propped up the Grand Lucayan through a combination of subsidies and tax breaks amounting to between $15m-$20m per year. This, though, merely narrowed - but did not stop - the financial bleeding incurred by the conglomerate and its Cheung Kong Holdings affiliate, which holds its resort and real estate investments.

Mr Turnquest, meanwhile, argued that the Grand Lucayan’s wider economic significance meant that Grand Bahama could not afford for the resort to be shut indefinitely given the negative impact on employment and the likes of Port Lucaya Marketplace vendors.

“The Government did not have the luxury of sitting on the sidelines, particularly when the entity involved is playing hardball,” he asserted. “It was never the intent to hold the property long-term. We’ve held it a little longer than we’d like to, but the pandemic came along and gummed up the works on this and other developments.

“Them taking the insurance was all part of the negotiations. They had suffered a loss, we needed the asset. There’s a happy medium there.” Citing the trade-off the then-government elected to make, Mr Turnquest added that he would “leave it to history” to judge “whether a good deal was made”. However, he reiterated that the move enabled The Bahamas to “take control of assets” - including a critical piece of infrastructure - that are vital to Grand Bahama’s economic future.

The Minnis administration signed the Grand Lucayan sales agreement with the ITM Group/Royal Caribbean joint venture just weeks before The Bahamas, cruise industry and rest of the world were placed into COVID-19 lockdown. Without the pandemic’s intervention, the Government’s strategy gamble of acquiring the resort and quickly turning it over to a new buyer may have succeeded.

However, ITM/Royal Caribbean used COVID’s devastating economic fall-out to water down the terms of the deal in its favour. The Grand Lucayan became secondary to efforts to redevelop Freeport Harbour, while the timelines for redeveloping the hotel were pushed back to such an extent that the benefits to the Bahamian people were heavily diluted.

The ITM/Royal Caribbean deal was subsequently terminated by mutual agreement shortly after the Davis administration was elected to office. A new sales process was initiated which, this Sunday, will see five selected bidders present their visions for the property’s redevelopment to the Government-appointed Board. Including the $65m purchase price, taxpayers have pumped in over $150m to keep the Grand Lucayan afloat, including covering the monthly $1m-$2m operating losses.

Reiterating that the arguments over Hutchison Whampoa being allowed to pocket insurance payouts from hurricanes Matthew and Dorian were “a very slippery slope”, Mr Turnquest said: “Again, the value of the asset acquired is certainly more than the insurance recovery on that.

“I don’t intend to get into the details of the negotiations. At the end of the day, the intent was to get control of the asset because the threat to close down the resort and mothball it was real. Putting those persons out of work and mothballing the entire property was akin to the Royal Oasis, and everyone knows the result of that.

“We couldn’t allow that to happen. We negotiated accordingly to acquire the asset. A number was settled on, and it was done.” The Royal Oasis was closed in 2004 in the aftermath of hurricanes Frances and Jeanne, and has remained shuttered ever since, deteriorating into its present dilapidated state despite being acquired by Irish property developer, Harcourt Developments, in 2007.

Mick Holding, who was Grand Bahama Chamber of Commerce president between 2017-2019, backed the Minnis administration’s move to acquire the Grand Lucayan. He told the Outlook conference: “I was very supportive of that move. They made the right decision at the right time. The fact the ultimate sale has not happened yet is irrelevant. At the time they bought it, it was the right thing to do.”

Barry Malcolm, who held the presidency from 2012-2014, said he “fully understands the logic and rationale” behind the former government’s decision to act. He added that terms such as “Hutchison played hardball” and its threatened “abandonment of the property” perfectly illustrated the “dilemma” that The Bahamas faced as a small country dealing with powerful, deep-pocketed investors from the world’s most developed economies.