By NEIL HARTNELL
Tribune Business Editor
Prime Minister Perry Christie was consistently briefed from two days before Baha Mar’s missed March 27 opening about the “increasingly dire” impact this and the impasse with its Chinese partners was having on the developer’s finances.
Whitney Thier, Baha Mar’s executive vice-president and general counsel, alleged in a July 16 affidavit that Mr Christie was being kept fully informed from March 25 onwards about both the developer’s worsening financial position and status of its negotiations.
“During the period from March 25, 2015, [Sarkis] Izmirlian met and talked repeatedly, and engaged in correspondence with, the Prime Minister of the Bahamas about the status of the negotiations, and also the increasingly dire financial condition of the applicants,” Ms Thier alleged.
“On June 16, 2015, Mr Izmirlian shared with the Prime Minister of the Bahamas a confidential synopsis of Baha Mar’s understanding of the discussions between China Construction America, China State Construction Engineering Corporation, China Export-Import Bank and the applicants to complete construction and arrange new financing.”
Ms Thier acknowledged that this prompted Mr Christie to hold his own direct, independent talks with Baha Mar’s $2.45 billion debt financier, the China Export-Import Bank, about obtaining additional funding that - at that stage - was estimated to be $300 million.
Her claims raise new doubts over whether the Christie administration can claim to have been completely ‘blindsided’ by Baha Mar’s decision to file for Chapter 11 bankruptcy protection in Delaware on June 29.
While the Government may have been unaware of the Chapter 11 intentions, it cannot have been ignorant of Baha Mar’s tightening ‘cash crunch’, given that the Prime Minister had been kept fully appraised of the situation for over three months.
Yet the Christie administration’s response in the immediate aftermath of the Chapter 11 move was to effectively side with the Chinese, and blame Mr Izmirlian’s failure to deliver a personal guarantee as the obstacle that prevented a financial resolution for Baha Mar’s completion.
Mr Izmirlian and Baha Mar, though, were more exercised by their inability to obtain a completion date and other underlying commitments essential to the project’s conclusion from China Construction America (CCA).
Ms Thier’s affidavit reveals how, just three days after Mr Izmirlian’s June 16 negotiations update with the Prime Minister, CCA effectively tore up “many of the points that Baha Mar had understood were agreed”.
“Namely, they did not commit to a date to recommence construction; refused to commit to guarantee a future China Export-Import Bank loan facility; refused to agree to any financial consequences in the event of a failure to meet a new construction completion date; refused to waive future claims by sub-contractors (including China State Construction Engineering Corporation--owned sub-contractors) notwithstanding an agreement by Baha Mar and CCA to a total final price for the remainder of construction (a compromise sum far in excess of the amount Baha Mar believed due); required Baha Mar to waive construction defect claims; and required advance release of retainage in contradiction fo the construction contract,” Ms Thier alleged.
Her affidavit for the first time discloses ‘meeting minutes’ and previous agreements intended to settle the deepening dispute between Baha Mar and CCA that resulted in missed completion deadlines and the Chapter 11 filing.
Tribune Business can reveal that the November 19, 2014, ‘meeting minutes’ that documented the then-agreement between the two sides committed CCA to “substantially complete” Baha Mar on March 27, plus improve work productivity and project management.
Some observers might interpret that as a tacit admission of ‘guilt’ by CCA. Under the heading of ‘improvement in work productivity’, the minutes state the contractor would ensure on-time completion “by all necessary methods”.
This included “sufficient manpower, both local and international, with a minimum of 200 new Chinese workers” arriving within 30 days and working whatever overtime was necessary.
And the ‘minutes’ added: “CCA agrees to take necessary measures to enhance the on-site management to ensure the construction will be conducted in an orderly manner, and the works will be completed on time and in the required quality.”
For its part, Baha Mar was to request the payment of the disputed $54.622 million to CCA. This was to be broken down into $15.103 million (50 per cent of the disputed sum) paid immediately.
Some 70 per cent of the $45.815 million being reviewed by all parties was also to be paid immediately, with a further $15 million eventually due as a final settlement.
CCA, though, missed the completion date and all the performance milestones and objectives set out in the ‘meeting minutes’, which were witnessed by the China Export-Import Bank (CEXIM).
Mr Izmirlian, in his latest August 28 message to Baha Mar staff, made clear his continued hostility towards CCA and desire to exclude them from further involvement in the project.
He pointedly excluded them from the partners Baha Mar wants to work with, saying: “We know the Government, too, wants Baha Mar to succeed and we remain hopeful that the Government of the Bahamas will work with us. We believe working together with the Government and CEXIM bank best serves the interests of all parties.”
The Delaware Bankruptcy Court is unlikely to rule on the Chinese bid to dismiss Baha Mar’s Chapter 11 case until mid-September, well after the Bahamian Supreme Court delivers its anticipated verdict on the Government’s attempt to wind-up the developer this week.
Judge Kevin Carey on Friday urged all sides to resolve the dispute through negotiations, rather than through the courts. He also indicated that he might condition any ultimate approval of Baha Mar’s Chapter 11 reorganisation plan on it also being approved by the Bahamian Supreme Court.
Baha Mar’s ability to reorganise via US Chapter 11 procedures will depend on both the Delaware and Bahamian legal systems, and its ability to attract new equity and debt financing.
Meanwhile, Ms Thier alleged in her affidavit that Baha Mar executives travelled to Beijing three times between April and June 2015 to try and resolve the dispute.
Attached to her affidavit is ‘a statement of principles’ drawn up by the China Export-Import Bank, which indicates that the idea of having the Bahamian Government provide a sovereign guarantee to underpin any new Baha Mar financing first came from the bank - not the developer.
The bank urged Baha Mar and CCA to “focus on the big picture and, with full appreciation of the importance and urgency of the current situation of the project, treat completion and opening as their top priority”.
Calling on all parties to fulfill their obligations, China Export-Import Bank said the first step towards resolution was to determine and agree the “cost overruns”.
It added that CCA and Baha Mar should “mainly” finance these overruns from their own financial resources. If new financing was required from itself, China Export-Import Bank said this would only be considered if debt ratios were reduced and the fund secured by assets or a guarantee by Baha Mar and the contractor.
Then, as an alternative, China Export-Import Bank said its loan could be “supported by a sovereign guarantee from the Government of the Bahamas”.
The Christie administration has so far avoided committing taxpayer dollars and more debt to underpin such a risk, electing not to become so deeply involved in a private sector project despite Baha Mar heeding CCA’s suggestion and calling for it to do so.