The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The Grand Lucayan's total capital financing needs, inclusive of the $65m purchase price, could almost double to $124m, the deputy prime minister revealed last night.

K Peter Turnquest, concluding debate on the guarantee needed to secure $35m in acquisition financing, said the Government would come back to Parliament with a new resolution once the cost estimates were better defined. If the $124m figure proves accurate, it means a further $59m will have to be found.

He said: "It is important to point out that the cost related to the acquisition of the property does not represent the sum total of the Government's commitment to see this project through. We are in the process of finalising what we believe will be the necessary resources in order to ensure the property remains viable; to ensure we undertake the immediate renovations and repairs that may be required; that we provide sufficient marketing and other operational support necessary to secure the onward sale of the property. Current estimates put the total capital financing needs around $124m, including the purchase price."

Mr Turnquest said future resolutions, if needed, "will capture any further guarantee needed of the Government to secure the full resources for supporting the operation of the property while a new buyer is identified".

He added that the Board of Lucayan Renewal Holdings, the special purpose vehicle (SPV) that was "shepherding" what is intended to be temporary government ownership and the search for a viable buyer, had been given clear instructions to incur costs that are only absolutely necessary to minimise the taxpayer's exposure.

"The Government does not intend to fall into the business of managing this or any other hotel. The SPV is only shepherd to this process, and will have as its focus the packaging and sale of the property to a well-funded visionary investor as soon as possible; certainly within a year," Mr Turnquest said.

"None of the borrowing required by the SPV to finance this venture will be directly incurred by the Government. As the name suggests, the special purpose vehicle was set up for the purpose of raising its own capital, holding the assets, and managing the process of resale.

"This is a standard vehicle available to the Government to structure its business under special circumstance. Using an SPV in this instance provided the Government with many efficiencies: It allowed the Government to act quickly; to limit its direct debt; and it will ultimately facilitate a faster and smoother sale."

Mr Turnquest added: "Although the Government invested $30 million to capitalise the SPV, this money will be repaid to the Government and will have no affect on the Government's projected deficit for 2018-2019. The initial payment on behalf of the SPV is a financial investment in the SPV, which is regarded as a below-the-line transaction and therefore does not impact the Government's deficit position.

"All we have done is converted one asset, cash, into another asset; an investment into the SPV. Any borrowings undertaken by the SPV will also have no effect on the Government's direct debt but, because a government guarantee will be required on this borrowing, as indicated by today's resolution, it will become a contingent liability of the Government."

Mr Turnquest called on Bahamians to step forward as potential buyers of the Grand Lucayan. "This is an opportunity for Bahamian enterprise and ingenuity. For a Bahamian visionary to seize the moment to build a homegrown success story that could inspire a generation of future Bahamians," he urged.

"The opportunity to control our destiny and reshape the future of Grand Bahama. The SPV is developing an updated prospectus, and commissioning a new appraisal, as they embark on a transparent process to sell the property.

"Over the course of this process, they will publish a timeline for investors to submit their proposals, opportunities to view the property, time for due diligence and considerations. The SPV will make its recommendation to the Government at the end of their vetting process."

Mr Turnquest confirmed previous Tribune Business revelations that the costs associated with upgrading and repairing the Grand Lucayan were estimated at around $35m. He said $8m will be necessary to make the Breaker's Cay property fully operational state, with the former Memories section requiring a $15.5m investment. The Lighthouse Point, the only one still operational, the convention centre, offices and back-of-house operations also need $15.5m.

"In the professional opinion of the engineers, Breakers Cay, which is currently closed, could be operational within a six-month period," Mr Turnquest said. "Lighthouse Point, which is open, has a few repairs that would take up to eight months. It would remain in operation while undergoing the renovations to the roof and other refurbishments should the SPV proceed in that direction. The Reef/Memories would also take up to eight months to complete the renovations required."

Mr Turnquest slammed the "absolutely ridiculous terms"offered by Wynn Group chief executive, Paul Wynn, the last potential private sector purchaser for the Grand Lucayan. "If the Government agreed to the course of action suggested by the Opposition, we would have committed $159 million of the people's money to a private investor without having any ownership in the hotel, and limited power to shape the future for Grand Bahama," he charged.

"We would have been agreeing to excessive work permits, to cover the financial loses of a private company and, on top of that, to guarantee their corporate profits. What Government in their right mind would accept that deal? I can assure you, the purchase agreement we negotiated was not only the more fiscally responsible choice, it was the common sense choice and it was the right choice."

Mr Turnquest said Hutchison Whampoa, the former owner, was set to close the entire Grand Lucayan property "which would have turned Grand Bahama's deep recession into a situation of economic collapse. Under no circumstances would we let Grand Bahama crumble that way".

He added: "Hutchison made no secret about their intention to shut down and wait it out. After Wynn, they had no other private buyers in the wings, and they were fully prepared to lock up the island and let the chips fall where they may. If the Government did not act, complete closure was a certainty.

"That would have had a disastrous domino effect throughout the length and breadth of the island, spilling over to every sector of the local economy. It would have led to a further reduction of beachfront accommodations, a decrease in consumer demand for the destination, a reduction in airlift and eventually the collapse of the tourism sector in Grand Bahama."

Mr Turnquest continued: "The former owners had a crippling hold on the entire industry because they let the resort sit there doing nothing. They couldn't care less about the degradation of the island's hotel industry or the welfare of the people of Grand Bahama.

"Instead of negotiating with an unmotivated seller, we are confident potential buyers will find it more attractive to negotiate with the Government as an eager seller with a clear vision for who we want as a partner for Grand Bahama. By removing the threat of closure to Lighthouse Pointe, the Government also eliminated a core uncertainty felt by investors."