By NEIL HARTNELL
Tribune Business Editor
Baha Mar’s Chinese financier will provide an extra $100 million in working capital as part of the proposed settlement to the dispute over the $3.5 billion project, Tribune Business was told yesterday, with November 2015 targeted for its opening.
While there was no sign that agreement had been reached by press time last night, sources familiar with the progress of negotiations in China said the proposed settlement ‘framework’ was similar to what had been offered prior to Baha Mar’s Chapter 11 bankruptcy protection filing.
That would have pegged the cost of completing Baha Mar’s construction at $300 million, subject to verification by a quantity surveyor.
Once that sum was confirmed, China Export-Import Bank, Baha Mar’s main debt financier, would provide $150 million or 50 per cent of the necessary financing.
The $150 million balance would then have been split equally between Baha Mar’s principals, the Izmirlian family, and China Construction America.
While each would have kicked in $75 million, the deal required Sarkis Izmirlian, Baha Mar’s chairman and chief executive, to also provide a personal guarantee - something he baulked at doing prior to June 29’s Chapter 11 filing.
Tribune Business sources with close links to the negotiating parties said that while the original ‘settlement’ was forming the basis for a new agreement, a key new ingredient was that China Export-Import Bank would inject an additional $100 million for Baha Mar to use as working capital.
Prime Minister Perry Christie on Monday said the bank had indicated it would be more “flexible”, and added that “the financing for the operation” was one of the key issues to be determined by the parties in their China talks.
This backs up what Tribune Business’s contacts said yesterday. But Mr Izmirlian still has to provide his personal guarantee, and with no confirmation that all parties had signed up to a settlement agreement, the ‘clock remains ticking’ on the fate of Baha Mar’s 2,593 local employees.
“There’s some settlement in the offing,” one well-placed source, speaking on condition of anonymity, told Tribune Business. “Three hundred million to complete construction, $100 million in operating capital to come from the bank, and an opening in November, which is cutting it close. And Sarkis has to give his personal guarantee.”
Baha Mar previously alleged that its failure to obtain a completion date from China Construction America was a key factor in why it was forced to file for Chapter 11, rather than agree to the proposed settlement pre-June 29.
Mr Izmirlian was likely hoping to use the Chapter 11 protection to ‘ring fence’ the $3.5 billion project from its creditors, preventing them from forcing it into receivership and/or winding-up, and thus forcing them to negotiate on his terms.
However, the Supreme Court’s failure to recognise the Chapter 11 proceedings, and give them legal effect in the Bahamas, has left Mr Izmirlian in a weaker position that before the June 29 filing, according to one attorney.
Speaking on condition of anonymity, the lawyer said there remained no obstacle to China Export-Import Bank exercising its remedies under the mortgage security for its $2.45 billion debt financing.
They suggested that ‘bankruptcy’, as had occurred with the Chapter 11 filing, was a loan default that would allow the Chinese bank to take possession of the $3.5 billion project and enforce its ‘power of sale’.
Such an action, the attorney warned, could potentially cost Mr Izmirlian and his family their entire $850 million equity investment in Baha Mar.
“Sarkis has to be realistic,” the attorney said. “I don’t think there are too many cards in Sarkis’s deck of cards right now.
“If the lender goes in and exercises their power of redemption, his equity of redemption goes from $900 million to zero pretty quickly.”
They suggested that the China Export-Import Bank, with the Government’s support, would likely move to appoint a receiver/manager for Baha Mar should no agreement be reached with Mr Izmirlian forthwith.
This would allow them to determine the way forward, and whether China Export-Import Bank wanted to retain ownership of the mega resort or seek a buyer for the property.
With no formal announcement coming from either the Government or Baha Mar before press time last night, it appears likely that no agreement has been sealed between the developer and its Chinese partners.
“We’re very hopeful,” one highly-placed government official told Tribune Business. They added that only Prime Minister Perry Christie, and none of his Cabinet ministers, was in direct communication with the negotiations in China.
Meanwhile, Baha Mar yesterday confirmed Tribune Business’s exclusive story that “drastic measures” would be necessary to “save” the Baha Mar project should no resolution with the bank be forthcoming quickly.
Magdalena Hamya, Baha Mar’s vice-president of human resources and organisational development, confirmed in a message to the developer’s employees that its workforce would ultimately be cut to just 52 if talks proved unsuccessful.
Tribune Business revealed on Tuesday how the developer would shed 93.5 per cent of its 2,593-strong workforce over a 45-60 day period, if an imminent solution is not reached.
In a posting that appeared to have emerged in response to this newspaper’s article, even though dated July 12, Ms Hamya confirmed Baha Mar would follow this path “if we are left with no alternative but to wind down and archive our resort”.
She told Baha Mar employees: “Throughout the Chapter 11 process to date, we have been doing our best to communicate with you in an open and honest way, even in circumstances where we have to share unsettling news.
“As part of these ongoing communications, we have been very clear that, if an appropriate resolution is not reached in the near term, we will be forced to try and save Baha Mar through a variety of drastic measures, including very significant workforce reductions.
“If a quick resolution is not reached, we simply would not have the financial resources at hand to indefinitely fund the current workforce that was put in place to operate Baha Mar. Rather, we would only have resources available to maintain the property until we could find the necessary relationships to complete Bah Mar’s construction and return it to an operating capacity to support its opening.”
Acknowledging that these were “drastic conditions”, Ms Hamya added: “If an agreement with our present lender is not reached in the near term, we will be forced to immediately downsize our operations to a bare minimum over approximately 45 to 60 days.
“This would include archiving a substantial portion of the project, and reducing the workforce to a skeletal team necessary to minimally maintain the resort assets until such time as construction can be completed and the property opened.
“We are very much aware of both personal and professional difficulties this possible scenario may cause to you, and want you to know that we are doing everything reasonably possible to avoid it.”