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Baha Mar - And What Comes Next

EDITOR, The Tribune

DR MINNIS and the new ministers face a daunting task over the next number of years: living with the legacy of Baha Mar.

Because of the secret intertwining of Baha Mar and the government of the Bahamas, it is difficult for an objective and reasonably knowledgeable observer to see how Bahamians are going to profit from Baha Mar.

Putting aside, for the moment, the issue of not collecting the VAT on the sale (theoretically, some believe it should be collected on both the initial transfer to one Chinese entity by Deloitte & Touche, and then on the final sale to another Chinese entity, possibly on amounts as high as $4.2 billion), one question will loom large in the next ten years and beyond: can Baha Mar operate profitably?

As a close but informal observer of Baha Mar, I’ve yet to see a published operating plan leading to profitability for Baha Mar, using generally accepted resort/casino-business operating standards. Have basic assumptions been made, and the right questions asked?

• We must first assume the final Chinese entity owning Baha Mar must pay VAT of 7.5 per cent on roughly $4bn to the Bahamian government (side agreements made that do not comply with Constitutional requirements are not legal, and must be set aside, we presume?), meaning at least $300 million is due.

• The Chinese owners and its operators must then operate this massive project profitably, so they may pay back the construction debt owed, in an orderly manner. Assuming 30 year terms at perhaps 6.5 per cent interest, that means the Chinese must generate cash flows including at least $260 million in interest payments per year, plus some system to pay back the VAT, both costs over and above the cost to operate the resort in the first place.

• How do the Chinese owners anticipate attracting a totally new tourist flow of roughly 1,500 rooms per day (2,400 rooms x 65 per cent, an industry standard all hotels hope to meet to break even), meaning roughly 3,000 people housed every day, without reducing the occupancy of Atlantis and other surrounding hotels?

• Is the infrastructure in place to support 3,000 new tourists daily, meaning reliable municipal electricity, water supply, waste treatment, air conditioning (was the futuristic sea-water cooling system ever built?), refuse, roads, local transportation, health and safety, and finally, the needed near-continuous air-bridge to Miami and Fort Lauderdale and other major US and world cities?

Based on my 41 years living on Miami Beach, and visiting many casinos worldwide, I fear that there are simply not enough new tourists to meet that medium occupancy. I have seen casino after casino open to great fanfare, then slowly wither and die as global casino and resort interest changes. Tourists are increasingly fickle, as more and more interests are introduced around the world. You only have to look at Atlantic City in New Jersey: I was there the day Trump opened his Taj Mahal to great fanfare. But it eventually went bankrupt, finally selling for four cents on the dollar. That’s correct: For every $100 invested, investors and banks received only $4 in return.

Normally, having a huge project like Baha Mar (really suitable only at a major successful entertainment centre like Las Vegas or Macau) slowly moulder is hard enough on any municipality and country. But because of the Bahamian Government’s efforts to get Baha Mar open at any cost, the possible loss of hundreds of millions of dollars in VAT collection and the doubtful collection of profits from a never-quite profitable hotel and casino, Bahamians may realise soon enough they are looking at many years of struggle.

While some of Baha Mar’s operators are indeed experienced, overall, Baha Mar may prove to be too big to operate in the Bahamas, profitably. Ever.

If the Chinese owners and their experienced operators have meaningful and realistic plans for a profitable Baha Mar generating sustained revenue for the Bahamas, I’m sure the people would like to see it.

THOMAS MOORE

RICKARDS IV

Eleuthera

May 18, 2017

Comments

djgross 2 months ago

It's about time that former Baha Mar foreign workers get paid what they're owed in salary and severance. End the discrimination. It looks bad that Bahamian workers were paid, but not foreign workers. There are more than 200 expat employees who were promised payment in 2016. We're still waiting.

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cmiller 2 months ago

I totally agree!!! Everybody that worked should be paid, not just Bahamians because the government wanted their votes!!!!!

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Gotoutintime 2 months ago

With the old Government your chances were slim & none---With the new Government maybe you've got a shot!

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SP 2 months ago

@THOMAS MOORE RICKARDS IV...You are obviously either feigning total ignorance as was then PM Hubert Ingraham in 2011 of dozens of successful, high-end resort destinations coexisting with multiple major casino operations and literally 1000's of rooms, or purposely being mischevious for some underhanded, stupid, political agenda.

http://www.casinocity.com/casinos/

Certainly, not many computer literate people are ill-informed enough to make such nonsensical statements!

Firstly, even a totally brain dead individual would have sense enough to understand a resort developer would carry out exhaustive, extensive market research before committing to a $3B development.

The Bahamas is way behind where it should be in resort developments. The single biggest impediment to resort development in the Bahamas is decades of corrupt politicians demanding a piece of the action as did Jerome Fitzpirate with Sarkis.

This phenomenon explains how and why the Bahamas fell from the #1 Caribbean resort destination position regionally, to not ranking at all in the top 10 as serious developers, like Sarkis, refused to "roll over" to demands of corrupt politicians and simply took their investments elsewhere.

https://www.tripadvisor.com/TravelersChoice-Islands-cTop-g147237

Prime Minister Dr. Hubert Minnis mandate to tackle corruption and subsequent immediate photo op with Sarkis was intentially and strategically calculated to send an exceptionally strong signal to investors that the Bahamas is now a business friendly country and safe to invest in.

40 years of massive political corruption stagnated growth, leading to the country being grossly underdeveloped, just because a handful of small-minded individuals greed far exceeded their care for country and people.

For the first time in my entire lifetime, I truly "feel" that we are finally on the right track and tremendous opportunities are with-in reach for future generations of our people.

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sheeprunner12 1 month, 4 weeks ago

Minnis,Turnquest, Dames & Symonette have a daunting task to reassure the foreign investors that they will recalibrate the Bahamian government machinery, improve the culture of doing effective business with Bahamian partners and providing a safe operating environment for owners/employees/patrons ............ And they have a short time to prove their abilities

The PLP Cabinet 2012-17 have set the bar LOW to match ....... but HIGH to solve the problem

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SP 1 month, 4 weeks ago

"Bahamian partners" are keywords! Many countries require foreign investors to partner with locals.

The Bahamas would benefit most if Bahamians were intrinsically involved at some level with all foreign investors, which would translate to more local entrepreneurs being created and more money reinvested in the local economy instead of having all profits repatriated by foreigners as locals diversify or buy additional shares in foreign-owned investments.

Many developing countries used this strategy to help "build wealth and national ownership" from with-in.

http://www.healyconsultants.com/blog/recommendation-guide-for-foreigners-investing-in-the-middle-east/

http://www.insideafricalaw.com/publications/local-partners-in-africa-opportunities-and-challenges-for-foreign-investors

China also quickly mushroomed to become the world's manufacturer by pushing joint partnership initiatives in as many areas possible.

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watcher 1 month, 4 weeks ago

To address the points in Mr Moore's letter - we now find ourselves with a white elephant that could bankrupt the country (via non collection of fees and taxes), thanks in no small part to the interference of the previous government.

Whilst I agree with SP's point that market research would doubtless have been carried out extensively by the original developers, I am not so sure that the present "owners" care all that much about Baha Mar's future. They (China as a whole) have received the monies for construction, plain and simple. In effect, they seem to have used Peter (Bank) to pay Paul (Construction company) In future they will only be interested in making sure that Peter gets repaid from future operations, and to hell with its effect on our nation. With such massive repayments due, I don't expect there will be too much left over to carry out site redevelopments, upgrades, repairs as they are needed.

China is well known for building ghost towns, or Potomac buildings, in their efforts to keep a major industry going and spread their global influence. This has led to the present credit crunch they are experiencing.

More worryingly for us (as Mr Moore points out) we have as yet no idea what the effect will be on our infrastructure. Imagine for one moment thousands of tourists descending on the streets and beaches of Nassau in a typical day, on top of the usual cruise ship passengers - ugh!! And then, after a few months or years of utter congestion, bookings at Baha Mar begin to drop off. What then?

Remember in the 1980s when the huge hotel at Cable Beach was first opened, and sucked the nation's coffers dry? That megaresort (for its time) began to wither and die after only a decade or so. Not having learned our lesson, the new phoenix rising from the ashes is a replica, only on steroids, and one which I do not think that our Chinese overlords know how to tame..

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turtle777 1 month, 4 weeks ago

It is refreshing all those commenting on my Letter to the Editor, save one, used critical thinking, and are cautious or dubious about the full-scale Baha Mar ever operating at a profit.

Many casino projects eventually prove too large for any city. I think all readers should look first to Las Vegas. More than a dozen multibillion-dollar projects sit unfinished or idle today (World Trade Center, Harley Davidson, Playboy, DeVille, the Fontainebleau, and many others), created by the hubris of the original Developers. Looking at Atlantic City in New Jersey is beyond sobering.

I and all the people I know wish Baha Mar the greatest success. But this writer fears it is too large, it is now many years behind schedule, and was constructed for markets that have simply disappeared, if they existed at all.

I'm sure most readers will have noted the first five star hotel opened yesterday in Cuba. If their and the U.S.government someday drops Cuba travel restrictions, the results will be instant and negative for the Bahamas.

Again, it is refreshing that most Bahamians can look at Baha Mar objectively, with intellectual concern, not emotional name-calling.

RICKARDS

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