The Tribune

By NEIL HARTNELL Tribune Business Editor A FORMER Bahamas Chamber of Commerce president yesterday said the details surrounding Kerzner International's $175 million debt-for-equity swap did not 'add up', questioning how the new owners would see a return on their Paradise Island assets if no operational/business model changes were forthcoming. Emphasising that he was not speaking as the PLP's Pinewood candidate, Khaalis Rolle questioned how Atlantis and the One & Only Ocean Club would generate the level of profitability likely expected by Brookfield Asset Management, especially as another cost layer was being added through Kerzner International's management fee. While "cautiously optimistic about the way this is going to go", Mr Rolle pointed out that a business never stayed the same after new owners took over, especially in circumstances such as those that had forced Sir Sol Kerzner and Kerzner International to transfer ownership of Atlantis and the One & Only Ocean Club as they key step in tackling their $2.6 billion debt mountain. Essentially, the former Chamber president is arguing that the 'business as usual' impression being conveyed by Kerzner International and Brookfield does not square with the current business reality, where the resorts need to go and the latter's expectations. "When new owners take over, although they always have regard for what's in existence, I don't see any value being brought to the table here unless the model is changed to be more efficient and profitable, and to generate the kind of returns" Brookfield will seek, Mr Rolle told Tribune Business. Pointing out that Atlantis and the One & Only Ocean Club had failed to generate enough cash flow and profits to service Kerzner International's $2.6 billion debt mountain, Mr Rolle questioned - based on Tuesday's announcement - what was changing to put Brookfield in a better position to service the remaining $2.3 billion. "If it's going to be business as usual, what is the value that is going to be brought through," the former Chamber president asked. "We all know in business that when the ownership changes, especially under these kind of circumstances, things have to be different for the new owners to reap the benefits of their purchase. Otherwise, what's the point? "This is the question that needs to be asked: If nothing's going to change and you're adding a new layer of costs in terms of the management agreement..... This is a new layer of costs. Kerzner is not going to manage for free, so it's going to be a cost. "These are the questions that have to be asked. The new layer of costs, the expectations of the new owners, what has caused Kerzner International to be in this position. How are they going to change the management philosophy or ability to make a profit. If you're doing the same as you were doing, these are legitimate questions that have to be answered to give everyone confidence that Kerzner and the properties will be around for the next 15-20 years." Acknowledging that Kerzner International had done "a tremendous job" in taking their Paradise Island properties to where they are now, Mr Rolle said the agreement to maintain staffing levels at the current 7,200-7,500 level was a further indication that nothing was changing in day-to-day operations. "Where is the new confidence to generate profits," Mr Rolle queried, suggesting that businesspersons and analysts would likely be delving beyond the way the agreement had been presented by Kerzner International and Brookfield. "The question is: If everything continues to be in existence, Brookfield does not put in $1 billion to reduce the debt, so debt servicing does not go down.... They were challenged on their profit margins in the base case," Mr Rolle added. "There's now a new owner, a cost in the management fee to Kerzner. What is going to put them [the Paradise Island properties] in a better or stronger position? The way it's being communicated does not support the position they're in, and the position they want to be in." And, expressing misgivings over the medium and long-term future on Paradise Island, Mr Rolle told Tribune Business: "I just see a major issue on the horizon at some point. Most of the deals that have gone bad in the tourism industry start this way."