The Tribune

As the wrangling over Baha Mar becomes ever more tense, CEO Sarkis Izmirlian wrote to the president of The Export-Import Bank of China, Liu Liange, on July 23 in an effort to break the deadlock over China Construction America holding the resort “hostage” and asking for a response to his proposals by today. This is what he wrote.

Dear President Liu,

I write to you today, in the spirit of good faith and compromise. I hope that under your leadership as President of CEXIM [The Export-Import Bank of China], with the continued assistance of VP Yuan and the CEXIM team, we can find a path forward towards resolution. After careful consideration, we have in good faith conceived an offer which we feels addresses the best interests of the bank, Baha Mar and the people of The Bahamas. To provide context to our offer, let me recap how we have arrived at this juncture:

1. Fact 1:􏰀The opening of Baha Mar was delayed from December 2014 to March 27th 2015 by CCA [China Construction America Bahamas Ltd]. For the purposes of this discussion, it does not matter what came before or whose fault it may have been that the resort did not open in December. However, it was wholly in CCA’s control to have the resort completed and opened by March 27th. In fact, during the January state visit to Beijing by Prime Minister Christie, CSCEC/CCA confirmed to the Bahamian delegation, to the Prime Minister, to Baha Mar and to CEXIM that the resort would be completed and opened by 27th March 2015. Unfortunately, that commitment was not honoured by CSCEC/CCA, and the opening had to be further delayed.􏰀􏰀
2. Fact 2:􏰀During my last visit to Beijing, Ms Mo, your representative, confirmed to the meeting assembled by you at CEXIM’s headquarters that, if the opening of Baha Mar had taken place on March 27th 2015, Baha Mar was on budget, and would not need any further funding.􏰀
3. Fact 3: Since 28th of March, Baha Mar continued funding its ongoing operating expenses, including its sizeable base of employees/citizens necessary for its opening.
4. Fact 4: Why were CCA’s invoices in dispute? Baha Mar has found them to be for work either not done, not required or at inflated prices. As you know, from the beginning of our relationship with China Exim bank, all invoices had to be certified by both RLB, the bank’s project monitor, and AECOM Cost, our quantity surveyor. None of these suspicious invoices were certified. For example, CCA submitted payment applications for itself and its subcontractors of $343.8 million between Feb and May 2015, yet AECOM Cost valued those at only $76.1 million, 22% of the amount claimed by CCA.
5. Fact 5: We have offered confidential independent binding arbitration to determine who is correct in our claims against China State and their claim against Baha Mar. CCA/CSCEC have repeatedly declined our offer.
6. Fact 6: Despite all our efforts, we still are no closer to a solution with CCA/CSCEC. We want to work with all parties to achieve a consensual resolution and have been vigorously attempting to do so, including through the meetings in Beijing last and this week. However, we cannot do so alone. Even today, we have received further comments from CCA’s attorneys backtracking on issues agreed last week:

a.They now refer to a temporary certificate of occupancy at Oct 31 with “substantially all” of the resort complete, as opposed to a certificate of occupancy and 100% complete as agreed.

b.They now want their retainage funds released early in contravention of the construction contract and the approval process contained therein, including sign off from the Architect of

Record and the bank’s project monitor.

In light of all these facts, we do not believe that continuing the discussion with CCA/CSCEC is a prudent path. Because of CCA/CSCEC’s actions, we have had to file for Chapter 11 and because of their delays the cost of completing Baha Mar has risen by $400 million. Baha Mar believes the resort is approximately 97 per cent complete, and knows, as does the Bank, that Baha Mar must open to generate operational revenue and in order to open the Project must be 100% completed. What hotel guest would want to come to a resort that is only “substantially complete”? Time is of the essence.

CCA walked off the project in April in breach of its obligations, and due to that breach and others by CCA, Baha Mar intends to mitigate its damage and work toward an opening, in accordance with the provisions in the Main Construction Contract.

In order to allow for the rapid completion and opening of Baha Mar, we propose the following:

1. In order to carry out the needed work, Baha Mar wishes to retain certain Bahamian and other contractors and expand its agreements with certain engineers and consultants to oversee the work toward completion. We have a plan in place ready to present to the bank. We have also begun conversations with Chinese general contractors to assist if needed.
2. We will allow the DRB [Dispute Resolution Board] and United Kingdom actions to resolve the differences between Baha Mar and CCA/CSCEC. We are not asking CEXIM to take sides, only to allow us enforce our contractual rights, and for CCA/CSCEC to assert theirs.
3. We will lend $200 million alongside CEXIM on a 50/50 basis into a new senior facility totalling $400 million that will fund the completion, opening and stabilisation of Baha Mar.
4. Upon reaching agreement, we will also work with you on the appropriate way to resolve the Chapter 11 cases pending in the United States.

After careful consideration, we believe this is the only way to complete Baha Mar and find a compromise with CEXIM. We are confident a consensual resolution can be achieved between us. We are doing all we realistically can to protect Baha Mar, but we can not continue to have Baha Mar put at risk by the self serving actions of others. Our goal is to have Baha Mar properly completed and successfully opened as soon as possible.

However, if we cannot come to an agreement, proceeding down the legal path will create terrible uncertainties, will delay the opening of Baha Mar further, will put our staff’s livelihoods at risk and will further damage the Bahamian economy. The proposed solution by the Government of the Bahamas of a provisional liquidator is not the best solution for the resort, or the Bank. This is an extremely complex project with multiple management contracts with major international hotel brands (which owe $52 million in key money to the project), multiple leases with retailers, restaurant operators, residential condominiums sales, casino operations, and so forth.

Appointing a liquidator at this point is likely to substantially negatively impact or lead to the extinguishment of those relationships, will lead to management upheaval, and will make it impossible to operate the resort in a short time frame even if completed. If the construction is to be finished quickly, it still must be funded in some form or another, and that is not merely CCA but also the Baha Mar architects, engineers and subcontractors, most of whom reside outside of the Bahamas and are subject to US Bankruptcy stay and jurisdiction. In short, Baha Mar does not believe that a solution other than a negotiated solution between the existing Sponsor and the Bank is in the Bank’s best short or long term interest.

Although we have been unable, despite significant effort on our part, to find a solution with CCA/CSCEC, we can find a solution amongst the two of us. Why allow the contractor to continue to hold Baha Mar hostage?

Given all the legal proceedings, we respectfully request a response to this proposal by close of business on Monday, July 27th.

Sincerely,

Sarkis Izmirlian

CC: The Right Honourable Perry G. Christie, Prime Minister and Minister of Finance