Bank’s takeover raises fresh economic sovereignty questions, writes Neil Hartnell.
ARE we now “The Commonwealth of China in the Bahamas”, as Branville McCartney so deftly put it? Opinions will likely be divided on that, but there is no disputing that the Bahamian Government and Beijing have got one thing they have been seeking: The removal of Sarkis Izmirlian and his family as Baha Mar’s developers.
For the China Export-Import Bank’s takeover of the $3.5 billion development, via the appointment of its own receiver, has been on the cards since June 30, when the Government united with two Chinese state-owned entities to oppose Mr Izmirlian’s bid to reorganise and restructure Baha Mar via US Chapter 11 bankruptcy procedures.
Deloitte & Touche’s appointment likely signals the end of the Izmirlian family’s involvement in a project that they almost pulled off despite seemingly insurmountable obstacles that were encountered regularly during a 13-year odyssey that would certainly have defeated 97 per cent of the world’s investors.
However, the investment game is neither sentimental nor for the faint-hearted, and the last obstacle encountered by Mr Izmirlian - two Chinese state-owned entities - appears to have been a bridge too far.
The China Export-Import Bank seems to have made its takeover move after calculating that Mr Izmirlian was unlikely to agree to a deal on its terms, while also becoming frustrated at what it perceived as the joint provisional liquidators’ failure to adhere to their ‘preserve and maintain the assets’ mandate by keeping 2,000 employees on salary for so long.
In effect, the Chinese bank has allowed the provisional liquidation team of Bahamian accountant Ed Rahming, and UK duo, Alastair Beveridge and Nick Cropper, to do ‘the dirty work’ for it by terminating more than 2,000 Bahamians.
Via Deloitte & Touche, it will now pick up and control a property whose cost base is aligned to the fact there are no revenue streams coming in, enabling the bank to focus on the plans going forward - Baha Mar’s construction completion and opening.
The receivership will also presumably pave the way for the much-maligned China Construction (America), who Mr Izmirlian has blamed for most of Baha Mar’s ills, to swing back in and complete the construction on the bank’s behalf.
It is a fallacy to suggest that Baha Mar would have been able to continue in Chapter 11 had it not been for the Government’s opposition. After all, it was chiefly the China Export-Import Bank’s attorney, Brian Simms QC, who won the battle to ensure the Chapter 11 proceedings were not recognised and given legal effect in the Bahamas. And the bank, together with CCA, ensured that the Chapter 11 bankruptcy protection for Baha Mar’s 14 Bahamian companies was thrown out.
Where the Christie administration could have made a difference, if it wanted to, would have been in persuading the Chinese to adopt a less aggressive legal strategy and forcing them to negotiate seriously with Mr Izmirlian.
Instead, we have had to put up with undisguised glee from the likes of PLP chairman, Bradley Roberts, who could not even bring himself to mention Mr Izmirlian by name in his response to the bank’s receiver appointment.
Breathlessly, Mr Roberts branded the latest development as “positive news’, and something that heralded “a new era of cooperation” between the parties involved at Baha Mar.
Presumably, he was referring to co-operation between the Chinese and the Government. He then went on, not surprisingly, to praise the Government’s “considerable patience, confident and strong leadership skills during these negotiations, at all times protecting the sovereignty of the Bahamas, the investment of Bahamian suppliers and demonstrating to the global community that the Government has given the developer every available opportunity to retain control of the project”.
Some day, Big Bad Brad, the Bahamas will learn whether there was a cost to pay for the Government siding against an investor. And it could easily be said that by appointing a receiver, the China Export-Import Bank has saved the Government’s blushes, as the liquidation strategy appears to have been going nowhere fast in producing a commercial resolution.
Let’s be clear: The Christie administration’s Baha Mar strategy was very much on trial in the run-up to the initially-scheduled November 2 court hearing, a date that was extended until November 25 in an apparent bid to play for time - possibly to allow the China Export-Import Bank to make its move. Intervention by the Government in what was - and still is - a commercial dispute appears to have brought little dividends to the Bahamian people, especially Baha Mar’s staff, creditors and retail/restaurant investors.
For the future for all three groups is cloudy and uncertain, despite the apparent optimism in some circles that the China Export-Import Bank will move quickly to finance the completion and opening of Baha Mar with CCA in two.
The bank has three options: Sell Baha Mar now to a new developer; complete the project and sell it immediately; or complete, open and hold the asset, working with brand/management partners to operate it until it turns a profit and is ripe for a sale.
Tribune Business expects that the bank, true to the attitude traditionally adopted by Chinese investors, will take the long view and opt for the latter option. Yet that does not necessarily guarantee comfort for any of the three most impacted Bahamian groups.
For those terminated Baha Mar employees, any return to Cable Beach will depend on how quickly the Chinese move. As for the retail and restaurant tenants, and Bahamian suppliers, the question is whether the receivers and China Export-Import Bank will honour their contracts.
In any receivership, it is important to remember who is the object of compassion and succour: The secured creditor, namely the China Export-Import Bank. Only once it has reclaimed its ‘pound of flesh’ will the Bahamian creditors be able to hunt for any scraps that are left, unless the Government can somehow prevail upon the China Export-Import Bank to make them all whole.
And there remains the suspicion that the Government may have sacrificed the long-term for short-term gain (getting Baha Mar open in the shortest possible timeframe via the Chinese). For the Baha Mar receivership raises anew questions of economic sovereignty and control over the commanding heights of this nation’s commercial assets.
“Let me put it this way,” said DNA leader, Mr McCartney. “The Chinese, here in New Providence, own part of Bay Street and part of Cable Beach; two of the most significant properties.
“My goodness, Number One Bay Street is in the heart of not only New Providence, but the heart of our country, our city. Cable Beach is the second most prime piece of property, which is owned by the Chinese.
“Thank you PLP, the Chinese are here. Thank you, PLP. I can’t say anything else. We used to say the Chinese are coming; now, the Chinese are here.”
And likely to be here for quite some time.