The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

SARKIS Izmirlian believes “the best and fastest path to opening Baha Mar has evaporated” with the dismissal of its Chapter 11 bankruptcy protection, while the liquidation process offers “no light at the end of the tunnel.”

The Baha Mar principal’s first public comments on a ruling that effectively shattered his legal strategy for reorganising the $3.5 billion project came amid suggestions that he had another, less public reason for seeking the Delaware court’s cover.

Tribune Business has obtained copies of ‘pledges’ and ‘charges’, which Mr Izmirlian and his Baha Mar Properties Ltd vehicle granted to China Export-Import Bank and China State Construction Engineering Corporation (Bahamas), over 5.1 million shares in Baha Mar Ltd.

Contacts who have reviewed these documents told this newspaper that these agreements effectively allowed Baha Mar’s Chinese partners to seize a majority equity interest in Baha Mar Ltd, the main project vehicle, should the developer (Mr Izmirlian) default on their terms.

These sources suggested that a default must have occurred when Baha Mar filed for Chapter 11 or even earlier and, as a result, a key element behind Mr Izmirlian’s race for Chapter 11 protection was to prevent China Export-Import Bank seizing the shares held in escrow.

Mr Izmirlian, meanwhile, told Baha Mar’s 2,400 staff that he saw “no evidence” that the Government’s winding-up strategy would result in the project’s rapid construction completion and opening.

In a downbeat message, Baha Mar’s chairman and chief executive, said the joint provisional liquidators were “working hard” to ensure the Government transferred the balance of the $21 million owed for the West Bay Street re-routing and associated infrastructure works to Baha Mar.

This sum will be used to pay staff salaries, but with Baha Mar’s Bahamian payroll consuming more than $5 million per month, and three such post-Chapter 11 payments already met, it appears that the ‘roads’ money will be exhausted this month.

In what almost sounded like a ‘farewell’ message from Mr Izmirlian, he said that efforts to complete Baha Mar would likely encounter more “unexpected twists and turns”.

And, in a thinly-veiled dig at the Christie administration, he added of the Chapter 11 dismissal: “While some see it as a victory, I was disappointed not because we lost a legal case, but because the best and fastest path to opening Baha Mar has evaporated.”

Again citing China Construction America’s (CCA) “inability and unwillingness to perform” as the main reason for the impasse, Mr Izmirlian, again in a barbed reference to the Government, said: “Others have decided that a liquidation process is the best path forward.

“However, I see no evidence that is correct, no plan that proves its logic, and no light at the end of the tunnel. For those of you hoping and praying that a rapid resolution is underway, I am afraid I cannot give you any guidance at this time.”

Recognising that, for the moment, he has lost control of Baha Mar to the Supreme Court and its joint provisional liquidation team, Mr Izmirlian confirmed he had met the latter last week.

He pledged his and Baha Mar’s “full co-operation” to Bahamian accountant, Ed Rahming, and the UK duo from AlixPartners, adding that any mediation efforts would also receive his support.

Mr Izmirlian then suggested that the joint provisional liquidators “are now beginning to understand the enormity of the task at hand”, but had Baha Mar’s “best interest” at heart despite the difficult circumstances they face.

He then acknowledged that Mr Rahming and his team needed either to secure the ‘roads’ money from the Government or locate new funding sources if Baha Mar’s Bahamian payroll for September was to be met.

“The company is facing a continued liquidity crisis,” Mr Izmirlian wrote. “I know the liquidators are working hard on getting the Government of the Bahamas to transfer the balance of the roads money that is owed to Baha Mar, as well as securing further funding.

“Without further funding, the company will not be in a position to make further payroll or pay the expatriate salaries that are now overdue since last month.”

The Government, though, has made clear that the ‘roads’ money is not to be used for paying Baha Mar’s expatriate staff - only its Bahamian employees.

Mr Izmirlian, however, added that the “hardships” being inflicted on Baha Mar staff and their families were a direct result of the court battles with the Government and its Chinese partners.

Then, in what almost sounded like a parting farewell, Mr Izmirlian thanked the staff for their efforts and added: “Whatever happens, please take pride in all of your care and effort.

“It is likely that the road ahead may very well continue to have unexpected twists and turns, but it is a road that must continue to be travelled in the effort for Baha Mar.”

Meanwhile, Tribune Business sources suggested that Baha Mar’s ‘pledge of shares’ to the China Export-Import Bank, and the ‘second priority’ charge over the same shares in favour of its contractor, represent the untold story of the Chapter 11 filing.

Referring to the ‘pledge’ agreement, which was made with Citibank’s Bahamian office, in its capacity as China Export-Import Bank’s ‘onshore agent’, one source said: “It appears there is some escrow arrangement with Citibank where the rights to the common shares [in Baha Mar Ltd] if certain default events occur.

“It appears that where an event of default occurs, the interest in those shares is gone.”

Suggesting that such a default may have occurred from February 2015, when Baha Mar failed to pay CCA what it deemed due, and certainly when Baha Mar filed for Chapter 11, the source said the China Export-Import Bank had the right to claim those shares in escrow and take a majority stake in the development itself.

“It now becomes clearer why he [Mr Izmirlian] went to Delaware,” the source, speaking on condition of anonymity, told Tribune Business. “Going to Delaware was the only avenue that could say: ‘You guys can’t own the shares’.

“The reasons given for Delaware, to force the bank and contractor to come and negotiate, it seems as though that isn’t the full story. It was more of a way to prevent the Chinese taking the shares.

“Sarkis is already gone. He’d gone from February when he didn’t pay the contractor. Why he had to be so secretive about going to the US courts was, if the Chinese got any inkling, they could have said: ‘Those guys don’t speak for the shares. They have no standing’.”

Subsequent Tribune Business checks confirmed that while China Export-Import Bank had the right to ‘call’ on the 5.1 million Baha Mart shares in escrow with Citibank, it had not done so despite the developer’s defaults.

Both the bank and CCA now appear willing to ‘wait out’ the joint provisional liquidation and see if Mr Izmirlian is desperate enough to negotiate a deal on their terms. Both have publicly stated they remain supportive of the Baha Mar project, and are prepared to assist in its completion and opening.

The documents seen by Tribune Business show that CCA’s ‘share charge’ ranks behind the China Export-Import Bank in terms of priority, with the Chinese seemingly slapping security on everything they could find at Baha Mar.

An Investments Board permit from 2011 reveals that as part of the security for the 5.1 million Baha Mar shares, CCA’s parent also received “a second priority charge” over all the real estate directly or indirectly owned by the developer.

This, again, ranks behind the $2.45 billion debenture securing China Export-Import Bank’s financing. which is affixed to the same land.