The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Grand Lucayan’s ex-chairman yesterday said the Government would “effectively have been buying the hotel a second time” had it agreed to Royal Caribbean and ITM Group’s demand it finance 95 percent of the $50m purchase price.

Michael Scott QC, speaking after more details of the former Minnis administration’s now-aborted deal with the Bahamas Ports International joint venture were revealed, told Tribune Business that the post-COVID deal proposed by the cruise line and its partner would have required the Government “in effect to give them the hotel in exchange for bringing cruise passengers” to Freeport.

“I want the record to be clear: None of my Board, from myself down to every single director on that Board, was in any way prepared to approve or ratify the deal that Royal Caribbean wanted in a modified agreement,” he said. “Not one director was prepared to go along with that, not one.....

“Essentially they wanted us to pay them to take the hotel away, which was ridiculous. In exchange for what? A drawn-out gestation period for the improvements for getting redevelopment of the hotel property and the various resorts in the complex. In other words, they wanted a sweetheart deal and to us it made no sense. None of it made any sense. They wanted to leverage the concessions, incentives and subventions they got on the original deal.”

Mr Scott said he would have been unable “to look myself in the mirror” had the revised Royal Caribbean/ITM deal, which was watered down considerably due to COVID-19’s devastating economic impact and the cruise line’s failure to conclude a deal with Hutchison Whampoa-controlled Freeport Harbour Company for additional cruise berths, ever gone through. He added that the details were “counter-productive” to all business principles.

The former Grand Lucayan chairman spoke after Chester Cooper, deputy prime minister and minister of tourism, investments and aviation, told the House of Assembly that the final deal offered by the Bahamas Ports International duo would have required the Government to effectively finance $45m or 95 percent of the purchase price for it.

Besides seeking “an upfront concession payment” worth $12m to go towards the purchase price, he confirmed that Royal Caribbean and ITM also wanted the Government to provide vendor financing via a $33m mortgage that was to be paid-off over a ten-year period. The Grand Lucayan’s redevelopment, and the timelines for doing so, were also watered down significantly and pushed back to the decade’s latter half.

Mr Cooper, acknowledging that the former Board had deemed such terms to not be in the Bahamian people’s best interests, also noted that the joint venture had wanted the Government to provide it with $100m in “cash concessions” over a 12-year period - averaging more than $8m per year - on top of the traditional tax breaks and investment incentives granted to resort developers.

“By November 2020, the Bahamas Ports International ‘best and final offer’ for the purchase of the hotel property was for $50m, with government contributing $100m in cash concessions to Bahamas Ports International over a 12-year-period,” Mr Cooper said. “To be clear, this meant that the Government of The Bahamas was asked to pay around $10m per year directly to the purchaser to help with redeveloping the property.

“This was in addition to other concessions and caveats. For example, of the $50m purchase price, Bahamas Ports International asked for an upfront $12m concession payment to be credited toward the purchase price. Also included in the $50m sale price was a government loan to Bahamas Ports International.......

“The new proposal also asked the Government to provide a $33m mortgage as part of financing of the $50m purchase price in an amortising loan with a two-year grace period, a one-year interest only period and repayment over ten years at an interest rate of six percent for the first five years and eight percent for the last five years.”

In return for agreeing to a financial deal heavily weighted in favour of ITM/Royal Caribbean, Freeport and the wider Bahamas would have received a much delayed and revised redevelopment plan for the Grand Lucayan. “Bahamas Ports International proposed to develop the property in three phases rather than two, whereby initially only 25 rooms at Lighthouse Pointe would be opened in 2022, to be ‘grown with demand’, as opposed to the original 500 rooms Breaker’s Cay Hotel by mid-2022,” Mr Cooper said.

“The new proposal had no timeline for the Breaker’s Cay hotel opening. The new proposal also deferred the opening of three new cruise ship berths to 2027...... The then-board did not find that proposal to be in the best interest of the Government or the Bahamian people and said so publicly. And upon coming to office and reviewing the proposal, the new administration concurred, to put it mildly.

“The new proposal was not a realistic or palpable arrangement after our significant investment on behalf of the taxpayers. Further, on coming to office we met with Royal Caribbean who indicated that they would only start construction during the second half of the decade; that’s at least five to six years later. We considered this to be wholly unacceptable to the people of Grand Bahama who have been waiting for a rather long time for relief.”

With Bahamian taxpayers having pumped $150m in direct subsidies into the Grand Lucayan to keep it operational during the three years to end-September 2021, Mr Cooper estimated that “millions more” have been incurred in indirect costs. He added that the resort consumes a monthly subsidy of between $1.3m-$1.5m, and some $10m-$15m in additional expenses are likely to be made before the latest attempt to sell it concludes.

The deputy prime minister also reaffirmed that Hutchison Whampoa pocketed the $80m Hurricane Matthew insurance proceeds rather than reinvest the $30m required to make the Grand Lucayan fully operational. A $20m insurance claim related to Hurricane Dorian resulted in a $13m payout and settlement, with the Government granting ITM/Royal Caribbean a $15m discount on the $65m purchase price that lowered it to $50m.