0

S&P Warned: Don’T ‘Rush To Judgment’ On Credit Downgrade

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known businessman yesterday urged Standard & Poor’s (S&P) not to “rush to judgment” and downgrade the Bahamas as a result of the Baha Mar impasse, adding that the only thing this country is losing is “time”.

Franklyn Wilson, the Arawak Homes chairman, told Tribune Business there was a “very high” chance that Baha Mar’s construction would be completed because the outstanding work was valued at just 10 per cent of the development’s total worth.

And, with the developer’s Chinese partner willing to invest a combined $225 million of the estimated $300 million required to finish construction, Mr Wilson said it was “inconceivable” that the remaining funds would not be obtained.

Even if the $75 million was not forthcoming from Baha Mar’s current principals, the Izmirlian family, he suggested there were plenty of resort and real estate investors willing to provide it and acquire the $3.5 billion project.

For these reasons, Mr Wilson said it was simply a matter of ‘when’ Baha Mar would be complete and open and, as a result, S&P and other rating agencies had to be “very careful” when suggesting that the development’s woes were worthy of a further downgrade to the Bahamas’ sovereign credit rating.

“I say this, particularly to the rating agencies, S&P and all those who evaluate the Bahamian economy,” Mr Wilson told Tribune Business.

“Understand that in macroeconomic terms, the Commonwealth of the Bahamas is not likely to lose in this whole matter.”

He added: “The reason why this country is not likely to lose is because we have billions of dollars sitting there [at Baha Mar].

“The quantity of money it takes to complete the project is small in relation to the value that exists there.”

Baha Mar, in documents filed with the Delaware Bankruptcy Court last week, said its unaudited balance sheet showed it possessed $3.1 billion in assets - largely the value of the resort’s real estate.

Its liabilities totalled a net $2.7 billion, the majority of which is the $2.4 billion construction loan from the China Export-Import Bank. The balance consists of $140 million claimed by the project’s contractor, China Construction America, a sum Baha Mar is disputing, and $123 million owed to trade creditors - many of which are Bahamian firms.

This gives Baha Mar roughly $400 million in net equity, although this will consist of illiquid assets. It was the likelihood that Baha Mar would run out of cash last week, thus enabling its Chinese partners to potentially ‘squeeze’ the Izmirlians into submission, that prompted the Chapter 11 filing.

Still, Mr Wilson said the $300 million valuation estimate of what was required to complete Baha Mar’s build-out was “less than 10 per cent” of the existing $3.1 billion assets.

“When a project is in excess of 90 per cent complete, and that type of money is invested it’s reasonable to assume it will be completed,” Mr Wilson told Tribune Business.

“The country’s interest in that being completed, the public’s interest in that being completed, is very high.”

The businessman added that the financial agreement for Baha Mar’s completion, negotiated previously by Prime Minister Perry Christie, gave him further confidence that the $3.5 billion project would be completed.

This was because the China Export-Import Bank, the debt financier, had agreed to contribute $150 million or 50 per cent of what was required, with China Construction America agreeing to kick-in $75 million.

Mr Izmirlian and his family were supposed to provide a matching $75 million plus a personal guarantee, with the $300 million sum to complete the build-out to be verified by an independent quantity surveyor.

That guarantee, and the $75 million, did not emerge as anticipated last Monday, as Mr Izmirlian instead produced the Chapter 11 bankruptcy filing.

“Whether the current owners of Baha Mar put in $75 million or not, it is inconceivable $75 million will kill a $300 million deal,” Mr Wilson told Tribune Business. “That means that in macro terms, the Commonwealth of the Bahamas is not likely to lose.”

And if the Izmirlians were not prepared to step into the breach, Mr Wilson suggested there were numerous reputable, deep-pocketed investors who would be willing to do so and take over Baha Mar.

“One of the things now clear is there are a number of investors, some extremely credible, who are lined up saying they are prepared to buy it,” he explained.

“That’s another reason for the rating agencies to understand the Commonwealth of the Bahamas is not likely to lose. That, to me, is the good news.”

The Government, due to a combination of its deepening relationship with Beijing and fury at being ‘stabbed in the back’ by Baha Mar’s Chapter 11 filing, has given every sign of wanting to replace the Izmirlians as Baha Mar’s owners.

It would like nothing better than to bring in an investor such as Malaysia’s Genting Group, the Bimini developer, and is likely to have sounded out the company on this issue. However, Tribune Business understands that Genting is reluctant to get involved “in a dogfight”, and would prefer to wait and see how the current dispute is resolved.

Mr Wilson, meanwhile, dismissed S&P’s assessment that the Bahamas’ economic prospects were dire because of the Baha Mar situation.

With prospects for the resort’s opening under a deep-pocketed investor “very high”, he told Tribune Business: “Please understand that the main thing the Bahamas has to lose in macro terms is time.

“They [S&p} shouldn’t rush to judgment and say we’re going to downgrade and so forth. They should be very careful with that.”

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.

Comments

MonkeeDoo 6 years, 10 months ago

I'm sure that S & P is going to listen to our illustrious "Capitalist" Wilson. Boy, catch yasef - ya embarrasin' me now !

2

Economist 6 years, 10 months ago

S & P is only interested in this country's ability to raise enough revenue to pay for its expenses.

Baha Mar was supposed to create an extra $300 million plus for the economy. There was to be considerable government revenue from this. Now there will be none and, in addition, there is going to be greater expenditure.

Add the useless waste of a further $100 million on Bahamasair.

Yup, looks like they will down grade us within 90 days.

Greece anyone??

1

banker 6 years, 10 months ago

Wilson's expertise is in cronyism and swindling. He doesn't know anything about high finance and Standard & Poor’s , and his modus operandi is Sub-Standard (housing) & (swindle da) Poors.

1

asiseeit 6 years, 10 months ago

I am of the mind that this country will have to hit rock bottom before anything changes. I therefore hope we are downgraded, I want the government to borrow more, and I hope we default soon. The sooner we hit rock bottom, the sooner we can start to rebuild and hopefully by then the Bahamian people will have woken up as to the greatest negative this country has right now, our government. Once we hit rock bottom maybe Bahamians will start to hold our politicians accountable. Maybe we will get away from tribal politics (Birdie). Maybe we will demand transparency. Maybe we will diversify our economy. So please downgrade us, we are headed to hell anyway!

0

asiseeit 6 years, 10 months ago

As the old saying goes, "there is nothing like a good cut ass to see the error of your ways."

0

Sign in to comment