The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former Baha Mar director yesterday predicted there would be “no happy ending” for the Chinese should they ultimately take over the $3.5 billion project, amid suggestions that Sarkis Izmirlian had made an offer to stave off a full winding-up.

Bloomberg Business News yesterday reported that Baha Mar’s developer had offered to inject an unspecified amount of financing, including short-term funding, to prevent the project going into full liquidation at the November 25 Supreme Court hearing.

The details, though, were sketchy, with Bloomberg suggesting that Mr Izmirlian nad asked for collateral and a priority ranking above all other creditors in return.

Tribune Business contacts close to the Baha Mar situation, while confirming the basic outline of Mr Izmirlian’s offer, described it as “old news” that was around a month old.

“This is correct but it is very old news. About one month old,” one contact, intimately familiar with Baha Mar-related development, said of the Bloomberg reports.

It is unclear why these details are only being leaked out now, presumably by someone with connections to the Baha Mar/Izmirlian camp. The offer was said to have been communicated directly to the Government, rather than Baha Mar’s joint provisional liquidators.

Another source involved with the Baha Mar situation added that they were unaware of the Izmirlian offer, but said: “That’s a conversation between him, the China Export-Import Bank, the Government and the contractor.

“The parties are talking among themselves. The joint provisional liquidators have put a framework forward, and they are bargaining and having exchanges through that framework.”

The time that has elapsed between that Izmirlian offer and now suggests that the other parties did not accept it, which may have been responsible for the developer’s downbeat tone in his October 22 message to staff.

It is also unclear whether the offer, and the financing it promised, could have prevented the terminations of some 2,026 Baha Mar staff if it was accepted.

The contrast between Prime Minister Perry Christie’s supposed optimism that a Baha Mar resolution may soon be forthcoming, and Mr Izmirlian’s seeming pessimism, is stark.

And most observers believe this is because he is not part of the solution, at least in the eyes of the Christie administration.

Multiple Tribune Business sources with liquidation experience yesterday said the key player is now the China Export-Import Bank, as it is the sole secured creditor via the $2.5 billion debenture charge over Baha Mar’s real estate assets.

They suggested that the likeliest outcome remained the Chinese bank appointing its own receiver, rather than letting Baha Mar fall into full liquidation and picking it up then. Tribune Business, though, understands that China Export-Import Bank has yet to take any final decision on appointing a receiver.

And one Baha Mar director believes there are no easy options for the Chinese should they elect to take over control, and ownership of the project.

“I don’t think there’s a happy ending for the Chinese,” Dionisio D’Aguilar told Tribune Business yesterday. “This strategy of taking it into liquidation, I don’t know what they were thinking.

“It’s not a pretty ending; not a happy landing, put it that way. The Chinese may think there’s a happy ending, but there’s not.”

Mr D’Aguilar said the China Export-Import Bank could work with China Construction America (CCA) to ultimately complete Baha Mar’s construction, then open it and hold on to ownership of the project itself while it looked for a potential purchaser.

Mr D’Aguilar, though, said this option would require the China Export-Import Bank to invest a further $600 million to complete the construction alone, taking its total outlay to around $3 billion.

He added that it would also be forced to fund initial start-up expenses and operating losses, something that would further increase its financing commitments towards the $3.5 billion mark.

The $3 billion figure alone is some $600 million more than the sum that ultimately sank Kerzner International’s ownership of Atlantis and the One & Only Ocean Club, meaning that the Baha Mar debt load is likely to be unsustainable.

Mr D’Aguilar suggested that China Export-Import Bank would thus be unlikely to recoup its outlay via a sale to a new buyer, having to settle for “cents on the dollar” and being unable to recover its full $3 billion-plus.

Instead, the former Baha Mar director believes that the Chinese bank will “cut its losses” by seeking a buyer immediately after taking possession.

While it is again likely to only recoup $0.50-$0.60 on the $1, and get back $1.25-$1.5 billion of its existing $2.34 billion commitment, Mr D’Aguilar said an ‘instant sale’ would involve less risk and less outlay.

“If they seize the asset, which is an option for them, they need $600 million to finish it,” Mr D’Aguilar said of the ‘complete and own’ choice.

“Their investment will go from $2.5 billion to around $3 billion, and they will have to fund operational losses until they sell it.”

Mr D’Aguilar acknowledged that there were “sharks circling in the water hoping to buy it for cents on the dollar”, and added: “The Government is desperate for something to happen. They are putting a lot of pressure on, because they want it open and people employed.

“The Chinese are either going to get a hair cut on the loan, or exit, cut their losses and get out of it. If they do that, a new owner has to come in, finish it and negotiate all over again.”

Mr D’Aguilar said Baha Mar, or whatever it was named, would have to piece all the hotel operating brands, retail and restaurant tenants, suppliers and staff back together again.

And, under a bank ownership, the project would lack the “passion” of an owner such as Mr Izmirlian or Sol Kerzner.

When it came to the ‘complete, open and own’ option, Mr D’Aguilar concluded: “I personally don’t think the Chinese bank will see it as viable.

“It makes no sense for them. Exiting will be cheaper for them than finishing it.... Do they put in $600-$900 million and take the risk of not getting paid, or do they take a write down of $600-$800 million and limit their losses?

“Based on my experience of the bank, which is extremely conservative and very tight with money, they’re not stupid. I don’t think they’ll take it. If they take it to completion and finish it I’d be very surprised.”