MOODY’S has given The Bahamas a two-month reprieve in which to either initiate a programme that has the potential of improving this country’s economic growth rate or face its present Baa2 bond rating being dropped to junk status.
One of the many areas mentioned for urgent attention was The Bahamas’ “persistently high levels of unemployment”. Also noted was declining investment, highlighting “the indefinite opening of the Baha Mar mega resort.”
In other words, in addition to attention to several other failing areas of our economy, construction has to start almost immediately to complete the Baha Mar resort. However, it depends upon who does that work — will it be Bahamian contractors with their Bahamian labour or Chinese Construction America (CCA), the “general contractors”, with their Chinese labour? If the latter, there will be no relief to The Bahamas’ unemployment problems.
On June 29 last year, Baha Mar developer Sarkis Izmirlian filed for Chapter 11 in Delaware’s bankruptcy court. At the time he said he would complete the project with Bahamian contractors. This meant that CCA, which created the problem when it was accused of missing construction deadlines, would be replaced by Bahamians. Mr Izmirlian said CCA had caused “both sizable delay costs that forced the resort to postpone its opening. Unable to open, the resort has been left without a sufficient source of revenue to continue our existing business.”
Reporting at the time on the bankruptcy announcement, The Miami Herald noted: “Although China has done construction projects around the globe with Chinese labour, analysts said China State Construction’s foray into a hospitality project was intended to be a résumé builder.”
Obviously, the Baha Mar failure with its international publicity has stained that résumé.
Mr Izmirlian had provided for the continued payment of his staff while the bankruptcy proceeding were being negotiated. Taken by surprise, and angered because Mr Izmirlian had not taken him into his confidence, Prime Minister Christie stepped in and decided that government would control the payment of Baha Mar staff so that they would not become “pawns” in the dispute between the developer and the construction company.
However, government failed to pay staff on time, complaining that Baha Mar had not given it sufficient information. Everything had been running smoothy until, as would be expected, everything broke down when government inefficiency entered the picture. Angered by the false accusations that failure of timely payment was Bah Mar’s fault, Mr izmirlian issued a statement:
“Baha Mar finds it disgraceful that the salaries due Baha Mar employees have not yet been paid. Baha Mar was fully prepared to pay these salaries in a timely manner having received approval from the US Court under Chapter 11 to do so. The government however saw fit, apparently for its own reasons, to participate in the obstruction of this process and has to date been unable to deliver on its promise regarding Baha Mar Citizens. We urge the government to fulfil this obligation which it said it was assuming for this pay period.” And so the rebuke continued. It was this that set the government against Mr Izmirlian, and judging by government’s subsequent actions, decided to sideline Mr Izmirlian from his own project. This obviously met with the approval of Export-Import Bank of China, which also seemed to want to see Mr Izmirlian gone.
Home Affairs Minister Fred Mitchell, quickly came to the defence of his prime minister. He sent Mr Izmirlian a veiled threat informing him that in the past he would have been thrown out of the country for daring to speak in such a manner to his prime minister. Mr Mitchell recommended that Mr Izmirlian be invited to “consider making the appropriate steps to live elsewhere” if he could not conform with the expected conduct of “economic guests”.
Not to be outdone, Labour Minister Shane Gibson got into the act. He recommended that government start performing “psychological evaluations” on all foreign developers seeking to do business in The Bahamas. Although PM Christie distanced himself from these remarks, there is little wonder that in its report Moody’s noted The Bahamas’ “declining investments.”
Mr Izmirlian decided to seek refuge in Chapter 11 of Delaware’s bankruptcy court. This would have protected the Baha Mar investment, kept staff employed, the hotel would have opened, business would have started and all creditors would have been paid in full – both secured and unsecured creditors. The only objectors, of course, were the group from Beijing – CCA and the Export-Import Bank of China. They maintained, among other things, that the debtors and all but one of the creditors were incorporated under Bahamian law and that Bahamian law should be the venue for the hearing. Government backed this move with the cry that for the matter to be heard in a US court would be a breach of “sovereignty”.
Government immediately petitioned to appoint local liquidators to oversee the $3.5 billion resort’s future.
All those dealing with this matter have agreed that Delaware’s Chapter 11 proceedings would have been the best proceedings for such a matter, but the Chinese, supported by the Bahamas government did not agree.
Even the UK attorneys that government recently engaged to justify its position, acknowledged in a memo that “it is not disputed that the US Chapter 11 process can be a highly effective tool with which to enable a debtor to restructure its affairs in such a way that will ensure its future survival”.
As Fort Charlotte MP Andre Rollins noted recently in the House of Assembly that during the 2008 global recession Kerzner International sought recourse in the Delaware courts because of the “lack of protection afforded by Bahamian laws to companies in Kernzer International’s situation.” There was no foolish cry of “sovereignty” then, because our courts recognised that Delaware had something that was not offered in the Bahamas.
Dr Rollins informed the House that “those arguments in favour of multi-national companies pursuing legal recourse in other jurisdictions due to the inadequacies of Bahamian bankruptcy laws were made by no less a person than the current receiver for the Baha Mar property, Mr Raymond Winder. Mr Winder said at that time that the best hope for protecting the financial viability of a billion dollar joint venture project was to refer the matter to the US courts via Chapter 11 bankruptcy proceedings. In fact, Resorts International,” Dr Rolliins told the House, “was purchased by Sol Kerzner out of Chapter 11 bankruptcy proceedings and later reopened by him under the name of Atlantis.
Even Justice Kevin Carey, who refused to allow the Baha Mar case to continue in his Delaware court made his decision because on July 22, 2015 Justice Ian Winder ruled that Baha Mar’s Chapter 11 bankruptcy proceedings in the United States would not be recognised in The Bahamas. Mr Carey commented that Chapter 11 “would have been an ideal vehicle for the restructuring of this family of related companies with the ultimate goal of finishing a project said to be 97 per cent complete and, upon its exit from chapter 11, to be in sound financial footing, with appropriate treatment of creditors. I am consequently disappointed that the parties have been so far unable to formulate a consensual exit strategy…”
The consequence is that Mr Izmirlial is no longer in charge of his own project. The Chinese are in sole control, and The Bahamas government that supported them — ostensibly on behalf of the Bahamian people – has been left up the creek without a paddle — completely at the mercy of Beijing. The Christie government now has two months in which to put Humpty-Dumpty together again or face having this country sent to the financial junk pile.