The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar last night had yet to receive the Government’s petition to place it into provisional liquidation just hours before Prime Minister Perry Christie confirmed the move, with the developer said to be “shocked” and “surprised” at the Government’s action.

Spoken to just before the Prime Minister’s address late last night, and as Tribune Business was going to press, well-placed Baha Mar sources said neither the company, nor its attorneys, had been served with the Government’s winding-up petition.

It could be argued that the Government has thus ‘returned the favour’ to Baha Mar and its principal, Sarkis Izmirlian, given that he allegedly ‘blindsided’ the Christie administration with the Chapter 11 bankruptcy protection move in Delaware on August 29.

The Government’s move will come as little surprise to many legal and financial observers, given that it was clear the talks between Baha Mar and its Chinese partners, the China Export-Import Bank, as $2.45 billion debt financier, and China Construction America, were effectively going nowhere.

Mr Christie last night implied that while the winding-up petition had been filed, it had yet to be heard by the Supreme Court, which gives Baha Mar and Mr Izmirlian a chance to oppose it.

If successful, the winding-up petition would place the 14 Bahamian-domiciled Baha Mar entities under the control of the Supreme Court and provisional liquidators.

This will be a team of Bahamian accountants, who will be charged with preserving and maintaining Baha Mar’s real estate and other assets, and working out a restructuring and long-term solution for the project’s construction completion and opening.

The Government’s plan would thus place Baha Mar under the Supreme Court’s supervision, taking the $3.5 billion development out of Mr Izmirlian’s hands. Thus the $850-$900 million investment made by Baha Mar’s principal is in more jeopardy than ever, and with prospects for he and his family being removed from the project having significantly increased.

The Government’s move could be a ‘squeeze play’ and negotiating tactic, designed to force Mr Izmirlian and his family back to the table, and it is certainly designed to wrest Baha Mar’s legal fate back into the Bahamian court system as opposed to the Delaware Bankruptcy Court.

But, above all, it signals the Government’s determination to get Baha Mar opened as quickly as possible, given that its main interests will be preserving some 2,593 jobs and ensuring that numerous Bahamian contractors, trade suppliers and investors in retail/restaurant outlets are made whole.

Mr Christie, meanwhile, confirmed Tribune Business’s previous revelations that the China Export-Import Bank was prepared to offer Baha Mar an extra $100 million in working capital to cover its initial operating expenses once open.

This would have been in addition to the $300 million initially thought necessary to complete construction. Under the initial proposal, this was supposed to have been split 50 per cent to the China Export-Import Bank ($150 million); and 25 per cent each ($75 million both) between the contractor and Mr Izmirlian.

However, Mr Christie last night confirmed what Tribune Business had been told earlier yesterday - that Mr Izmirlian was refusing to give the personal guarantee demanded by the Chinese, and also was not withdrawing the Chapter 11 action nor the $192 damages claim filed in the UK High Court against the contractor’s parent.

“It transpired at the Beijing negotiations that Baha Mar’s additional funding requirements had increased considerably, and now included not only funding for completion of construction, but funding to meet start-up and operating expenses; funding to cover other liabilities and deferral of principal and the initial balloon payments under the loan facility with Ex-Im Bank,” Mr Christie said.

“I am advised that both Ex-Im Bank and China Construction Company demonstrated flexibility in meeting Baha Mar’s expanded funding requirements, and project completion date. This notwithstanding, Baha Mar still wanted an extended period for further negotiations which, however, was not acceptable.

“Baha Mar was also not prepared to agree to terms which would have included the immediate discontinuance of their Chapter 11 Bankruptcy proceedings in the US and their legal action against China Construction in the United Kingdom. These terms were demanded by Ex-Im Bank and China Construction, and supported by the Government, as conditions to any agreement for additional funding, resumption of construction and project completion date.”

Tribune Business was told by multiple sources yesterday that Baha Mar’s team was still in Beijing talking to its Chinese partners, but it again seemed that little progress was being made.

Several contacts suggested that the China Export-Import Bank was prepared to “give it one or two more days” before moving to appoint a receiver for Baha Mar itself, using the remedies available to it to under the mortgage security for its $2.45 billion financing.

Thus the Government’s move to appoint a provisional liquidator could also be interpreted as a move to pre-empt the bank, and ensure a Chinese state-owned entity does not take control of 1,000 acres of prime real estate at Cable Beach.

However, the tone and content of Mr Christie’s statement last night gave every indication that the Government is siding with, and working with, the Chinese. It now appears that the Government is at war with the Izmirlian family, which it entrusted and sought out 12 years ago to redevelop Cable Beach.

Mr Christie said: “Ex-Im Bank and China Construction have pledged their willingness to work with The Bahamas Government in their common objective for the completion and opening of the project in the shortest possible time.”

One legal source, speaking to Tribune Business before Mr Christie’s address, said: “The Government is going to be putting added pressure on the lender to exercise its remedies because they want this open before the winter season 2015.

“You cannot have an asset of that money sitting there and doing nothing. Christie’s got a real problem. He has 2,500 people sitting there, and the Government can’t afford for them to sit there. That is untenable politically.”

The legal source added that a major problem was the $123 million owed to trade suppliers, many of whom were Bahamian companies and entrepreneurs.

Any winding-up/liquidation of Baha Mar, and its sale to a new developer, would likely be for $0.50-$060 on the $1, accounting industry sources have estimated. Such an outcome would mean all sales proceeds would go to the Government and the Chinese bank, to cover its $2.45 billion loan.

This would threaten to leave Bahamian creditors and contractors with nothing. The source said this required “a political solution”, with the Government likely negotiating with the China Export-Import Bank for extra funding to make the creditors whole.

Baha Mar’s fate will now, it seems, be determined by the courts and not around the negotiating table. This, in turn, could make any resolution and opening take longer, especially if the situation results in protracted legal action.