The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ economic breathing room “is being squeezed day by day”, with Standard & Poor’s (S&P) warning of a further credit rating downgrade no surprise.

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC ) chairman, told Tribune Business that last week’s S&P action “was not unexpected” due to the deepening impasse and delays surrounding the $3.5 billion Baha Mar project.

Given that the development accounted for a major chunk of the Bahamas’ projected economic growth in 2015 and 2016, Mr Bowe said the Chapter 11 bankruptcy filing and associated court proceedings were bound to prompt S&P and others into revising their forecasts.

“The S&P report is not a drastic surprise, but it tells us our breathing room is being squeezed day by day, and we need to bring resolution to this,” Mr Bowe told Tribune Business.

“I think anyone who has been watching our credit rating up to this point in time would know a large part of the stability in that for the past 12-18 months has been GDP growth projections, which are tied in large part to the opening of the new resort.

“I believe it’s not unexpected that S&P would react negatively to any threat to the opening of Baha Mar.”

S&P has already cut is 2015 GDP growth forecast for the Bahamian economy from 2.5 per cent to 1.7 per cent, shaving roughly $64 million off this nation’s projected expansion. And that was before Baha Mar’s Chapter 11 filing, which could spark further negative revisions.

S&P last Thursday warned that the Bahamas faces “at least” a 50 per cent chance of a sovereign credit rating downgrade within the next 90 days, placing this nation on ‘negative creditwatch’ due to Baha Mar’s Chapter 11 filing.

It also suggested there was a possibility the Bahamas could lose its ‘investment grade’ status, implying it could lower this nation’s rating “by one or more notches” if there is either a “prolonged delay” to open Baha Mar or it fails.

A cut by two notches or more would reduce the Bahamas’ sovereign credit rating to ‘junk’ status, damaging this nation’s credibility in the eyes of both global investors and the international capital markets.

Any rating downgrade would impact the Government’s ability to access foreign currency borrowings, with investors almost certain to demand higher interest (borrowing) rates in return for lending the Bahamas’ money.

If that happens, this nation would see even more taxpayer dollars sucked away from essential public services to service this nation’s debt.

S&P’s action shows how rapidly the ‘ripple’ or ‘domino’ effects from Baha Mar’s Chapter 11 filing are spreading to the detriment of Bahamians and the economy, moving beyond the immediate impact on the developer’s 2,000-plus employees, local contractors and retail/restaurant investors, and trade creditors owed some $123 million.

Mr Bowe, though, expressed hope that a swift resolution to Baha Mar’s woes would encourage S&P to remove its ‘negative creditwatch’ from this nation.

But he warned that the Bahamas, and the feuding Baha Mar parties, only had two months in which to produce “a clear path” towards the $3.5 billion project’s construction and opening.

S&P analysts will arrive in the Bahamas next week for their annual visit to this country, and the impressions and findings they make will also play a critical role in whether this nation suffers a further credit downgrade.

“We know if this [Baha Mar] is delayed indefinitely, that is going to have a tremendous impact on GDP growth,” Mr Bowe told Tribune Business.

“There’s no escaping that if we have a significant reduction in GDP growth projections, it is going to have a domino effect, starting with Government debt and then the rating.

“All stakeholders stand to lose significantly if this project does not proceed. I think the credit rating agencies will be focused very heavily over the next two months on how this is resolved,” the Chamber chief added.

“All eyes will be on the Bahamas, not only credit rating agencies but other investors and tourism partners, and persons concerned with the overall well-being in the country.

“We were on the right path, and a large amount of that was premised on the opening of Baha Mar. If you will, it was the jolt to the employment numbers, the jolt to economic activity by the new product coming on to the market and attracting additional international arrivals.”

S&P last week warned that if Baha Mar (the Izmirlians) and its Chinese partners were unable to resolve their differences “in the next several weeks”, the reputation of the Bahamas’ tourism industry might be “tarnished”.

“It remains unclear when Baha Mar will open, or if it will be able to sustain the employment of the more than 2,000 employees already hired,” S&P said.

“The CreditWatch placement reflects our view that the Baha Mar developer’s Chapter 11 reorganisation filing could result in a prolonged delay in the opening of the $3.5 billion Baha Mar resort, the biggest in the Bahamas’ history.

“A delay, in turn, could weaken the image of the Bahamas’ tourism brand and lead to lower economic growth,” the agency added.

“In our opinion, if the parties do not come to an agreement in the next several weeks, there are risks that not only will Baha Mar be unable to open in the near future, but that if and when it does open, it will not receive the amount of visitors it initially expected, thus tarnishing the reputation of the Bahamas’ tourism industry, which represents more than 50 per cent of the Bahamas’ GDP.”

Warning that more than 2,000 Baha Mar staff would be terminated within the “next couple of weeks” if the dispute was not resolved, S&P said this would further exacerbate the Bahamas’ already high unemployment rate of 15.7 per cent.