The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas was yesterday warned to “brace for significant economic fall-out” as a result of Baha Mar’s slide into receivership, with the private sector failing to equate the project’s “higher reward with higher risk”.

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, told Tribune Business that some Bahamian creditors had allowed higher-than-normal receivables balances to accumulate with the $3.5 billion development because it was viewed as ‘too big to fail’.

He added that they had extended significant credit to the developer on the assumption that Baha Mar would be completed, and full payment subsequently forthcoming - a decision some are now regretting.

Mr Bowe said that regardless of whether Baha Mar was in receivership with Deloitte & Touche (the current position), or under the care of the former joint provisional liquidators, the outcome for Bahamian creditors was likely to be little different.

The size of China-Export Import Bank’s $2.45 billion security, combined with the $600 million needed to complete Baha Mar’s construction, meant that any recovery was likely to go to the bank - leaving Bahamian creditors with little to nothing.

Mr Bowe, though, said some Bahamian construction firms may be able to leverage full or partial payment of the sums owed to them if the China Export-Import Bank decides to complete Baha Mar, and requires their presence on the job site.

“Unfortunately, while there’s always the great potential for these kinds of developments to be game changers in a positive way, there’s a risk and reward matrix,” Mr Bowe told Tribune Business of Baha Mar. “The higher the reward,the higher the risk.”

The Chamber chief explained that Baha Mar’s business model had exposed the $3.5 billion project, and its Bahamian vendors, contractors and investors, to greater risk than that involved with working for Atlantis.

Unlike the Paradise Island-based destination resort, Baha Mar’s developer, Sarkis Izmirlian, and his Chinese partners elected to complete and open the development in a single phase - a decision that ultimately exposed it to greater financial, logistical and management problems.

“Unfortunately, this scenario - all at once, no phasing in, the big bang approach - came with added risk, and we’re paying for some of that,” Mr Bowe told Tribune Business. “It came with big risks that we’re now grappling with.

“We need to educate businesses on the risk of doing business, and need to make sure we have mechanisms to protect against this situation in future.

“One of the major factors that really needs to be thought about and discussed is: Does the Government have sufficient resources in its investment planning and monitoring units?”

Mr Bowe argued that it was simply not sufficient for the Government to just negotiate a ‘Heads of Agreement’ for major developments, issue the relevant permits, attend the groundbreaking, and then sit back and watch investors proceed.

He called for the Bahamas Investment Authority (BIA), and other government regulatory agencies, to have the necessary personnel and technical capacity to undertake constant surveillance of major investment projects.

Suggesting that this may have picked up Baha Mar’s financial and construction woes much sooner, Mr Bowe said: “What we would have hoped is that the challenges in terms of Baha Mar’s liquidity would not have taken the parties by surprise.

“From that perspective, if we’re taking on such mammoth projects, the Government have to be monitoring very closely throughout the project the financial condition, status and risk of insolvency facing these developments.

“We have to position ourselves that we can only take on what we can monitor, what we can regulate, and what we can manage to protect Bahamian interests as suppliers or equity holders.”

Mr Bowe added that the Chamber’s focus was now on educating its members, and all Baha Mar’s creditors, on their options now that the China Export-Import Bank had placed the project into the care of its Deloitte & Touche receivers.

Describing the significant receivables that some Baha Mar creditors had allowed to accumulate as “deeply disturbing”, the BCCEC chairman added: “The receivership route is not good news for partners with substantial amounts owing.

“The harsh reality is that if you extend credit any party, you run the risk of credit risk - they cannot pay you back or honour their financial obligations. There is significant risk when you extend significant amounts of credit.”

With Baha Mar clearly insolvent, Mr Bowe said the size of the debt owed to China Export-Import Bank as the development’s secured creditor meant that there was likely to be “only sufficient funds” to pay that entity.

And, whether Baha Mar was in receivership or provisional liquidation, Mr Bowe said the outcome would be little different.

He added that “a lot hinges” on the China Export-Import Bank and its receivers, and whether the latter are tasked with selling Baha Mar immediately, or completing the project and operating it for a time before seeking a buyer.

While some Bahamian contractors may be able to recover a percentage of what is owed to them if they are required to help complete Baha Mar’s construction, Mr Bowe said most other creditors had little leverage.

“There will be a significant fall-out. We are going to have to brace ourselves,” Mr Bowe told Tribune Business of the impact on Baha Mar’s creditors and 2,000 terminated staff.

“Those businesses of sufficient size and strength will be able to weather these losses, but there will be major changes to their business model. They will not be as productive as in the past, and will have to cut back to manage the losses on this project.

“For some contractors and vendors, there is going to be a real risk of businesses shuttering, as they will be unable to meet their own obligations as a result of the receivables situation on their books.”

Mr Bowe suggested that bridging loan facilities be made available to Baha Mar creditors to enable them to “get over the hump”.