The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The continuing uncertainty surrounding the $3.5 billion Baha Mar project is “jeopardising the Bahamas’ fragile growth prospects”, Standard & Poor’s (S&P) believes, with local companies owed a collective $170 million.

The credit rating agency warned that Baha Mar was “offsetting” positive progress elsewhere, namely the Government’s fiscal reforms and lower current account deficit, given that the nature of - and timeline for - a resolution is currently unknown.

S&P, which has maintained the Bahamas’ investment grade credit rating, albeit one notch above ‘junk’ status, also appeared to express relief that the Government had not attempted to ‘nationalise’ Baha Mar, given its importance to the economy.

“Balancing the positive fiscal and external developments, growth in the Bahamas remains sluggish, and the uncertainty surrounding the prolonged $3.5 billion Baha Mar resort opening delay has continued to jeopardise the country’s fragile growth prospects,” S&P warned in its updated April 15 assessment of this nation.

“Although the Government has not taken the project on its balance sheet, which we view as a positive development, the close to 2,000 employees that were hired in anticipation of the opening last year have been left without jobs since October 2015, and local Bahamian creditors, who are owed a reported debt upwards of $170 million, have been left unpaid.

“We believe that uncertainty surrounding the project’s resolution contributed to low real GDP growth of 1 per cent in 2015, and will subdue domestic demand over the next year [2016].”

The $170 million figure cited by S&P, if correct, shows the enormous impact that Baha Mar’s failure to open on March 27 last year has had on countless Bahamian companies and individuals, including many small and medium-sized enterprises (SMEs).

Of that sum around, $74 million is said to be owed to some 123 Bahamian contractors. Most of the balance is likely owed to local vendors and suppliers, with Baha Mar said to have liabilities of $123 million with trade creditors when it filed for its ill-fated Chapter 11 bankruptcy protection last June.

Baha Mar’s Deloitte & Touche receivership team, in behalf of the project’s main secured creditor, China Export-Import Bank, have launched a formal Supreme Court-approved process to sell the development.

They have hired Colliers International, the Canadian-headquartered real estate firm, to market the $3.5 billion project to prospective buyers around the world.

Meanwhile, S&P said the currently “elevated external risks” to the Bahamas are expected to decline over the next three years.

“The current account deficit (CAD) improved significantly in 2015 on the back of lower oil prices and a drop in construction-related imports [Baha Mar], falling to an estimated 15 per cent of GDP, from 23 per cent in 2014,” the rating agency said.

“We expect this improvement to continue over the next three years, with the CAD expected to reach 12 per cent by 2019.”

S&P warned that foreign direct investment (FDI) continued to fall, accounting for under 6 per cent of the current account deficit in 2015. However, this was compensated for by “errors and omissions” in balance of payments calculations.

“Although official net foreign direct investment (FDI) inflows continued to fall, financing less than 6 per cent of the CAD, net errors and omissions shot up, financing nearly 80 per cent of the CAD in 2015, compared with 23 per cent a year earlier,” S&P said.

“While large errors and omissions complicate the analysis of CAD financing and the country’s overall external balance sheet, we estimate that these errors and omissions likely represented under-reported FDI or tourism flows, which qualitatively diminish liquidity risk to the still-large current account position.”

S&P, though, said the Bahamas’ “extremely high” external liquidity needs and rising foreign currency debt owed to overseas investors were factors “weighing” on the sovereign credit rating.

“We expect the net external financing needs of the public and financial sectors to reach 537 per cent of current account receipts (CAR) in 2016, reflecting the still-high CAD as well as the high rollover needs of the financial sector,” the rating agency added.

“However, we consider the sector’s external assets highly liquid, which somewhat diminishes liquidity risk. We expect external liquidity needs to decline over the next three years, though remain above 400 per cent of CAR through 2019.

“Additionally, the net external debt of the public and financial sectors has risen from 14 per cent of CAR in 2009 to an estimated 52 per cent of CAR in 2015, and we expect this to continue to rise to 54 per cent this year. These figures do not include the external debt and FDI in the island’s substantial tourism sector.”