The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government's bid to acquire the Grand Lucayan resort will "not throw the Budget out of whack", the Deputy Prime Minister expressing hope it can be partially re-opened for the 2017-2018 winter season.

K P Turnquest told Tribune Business that the planned purchase "structure" will not overly-burden the cash-strapped Public Treasury, although he declined to provide details.

Confirming that the Minnis administration was now awaiting a response to its offer from Cheung Kong (CK) Property Holdings, one of two main entities into which Hutchison Whampoa has split, Mr Turnquest indicated the Government could not wait any longer for private sector bids to gel.

Data released last week by the Bahamas Hotel and Tourism Association (BHTA) confirmed the impact that the year-long closure of Freeport's 'anchor property' has had on Grand Bahama's tourism numbers, with the percentage declines matching the 59 per cent room inventory loss post-Hurricane Matthew.

Grand Bahama's room revenues, for instance, were down by more than $9 million for the eight months to end-August 2017, while available room and room night sold trends closely matched the Grand Lucayan's inventory loss, down 57.69 per cent and 59.73 per cent, respectively.

The BHTA data under-estimates the scale of the economic impact, as it does not include food and beverage revenues, for example, or the spin-off effects of the Grand Lucayan's more than year-long closure on support businesses and Port Lucaya Marketplace tenants. "We submitted and await their [CK Property Holdings] response," Mr Turnquest disclosed of the status of the Government's offer. Asked whether it had run out of patience with prospective private sector buyers, he responded: "I wouldn't say it exactly like that.

"Right now, we think this is the best offer available to us. There have been other companies trying to purchase the property, but where they are and how soon we would see something happen, I don't know that. The Government is trying to be proactive and advance our position at least."

The Deputy Prime Minister expressed confidence that the Government could purchase the Grand Lucayan and remain within existing Budgetary constraints, even though the deal may involve a nine-figure sum.

"Not the way we contemplate it," was Mr Turnquest's response, when asked about the purchase's fiscal ramifications. "We have in mind a structure, which I don't want to talk about at this point, but we don't see it as throwing the Budget out of whack. We can do it within the current constraints."

Tribune Business sources previously revealed that C K Property Holdings was willing to provide the Government with around $60 million in 'vendor financing' to fund the purchase, shortly after the Prime Minister used his late July national address to confirm that it would take an equity stake in the new ownership group.

This newspaper also disclosed earlier this year that the Wynn Group, the Toronto-based company that emerged as the Grand Lucayan front-runner under the Christie administration, had offered $110 million to acquire the property from CK Property Holdings.

It is unclear whether the Government will be paying a similar sum, although the property's condition will likely have deteriorated further over the past eight months, meaning its worth will have dropped.

Some observers are likely to regard the Government's purchase offer as a sign that little progress has been made in resolving the Grand Lucayan impasse, especially since it has been almost three months since the Prime Minister announced a similar strategy.

However, with the peak winter tourism season now upon the Bahamas, the Minnis administration has seemingly decided to 'go it alone' and acquire Freeport's 'anchor resort' itself, without waiting for private sector groups to come through and/or bind together.

Just 200 rooms at the Grand Lucayan's Lighthouse Pointe property are currently open, with The Reef and former Memories complexes still shuttered. Several tourism industry contacts have expressed concern that Freeport's tourism industry may not survive if the property does not re-open in time for the peak 2017-2018 winter season.

"We are cognisant of all these factors," Mr Turnquest said. "We believe that parts of the property can be brought back relatively quickly, while other parts may take longer. We believe it will be fully open by summer, but parts will be brought on before that."

The Government's plan is to hire a private sector manager to operate the Grand Lucayan on its behalf, with the transaction repeatedly described as akin to the 2008-2009 banking and auto industry bail-outs in the US - meaning it will seek an exit route, and sale to a new buyer, as soon as possible.

Mr Turnquest said "we have several private sector operators that are interested in the property" as managers - a structure that has not always been unsuccessful. The former Radisson Cable Beach, when under George Myers' Myers Group stewardship, did turn a small profit for the Government.

With Grand Bahama's hotel room revenues down almost 62 per cent for the first eight months of 2017, standing at $5.586 million compared to $14.671 a year ago, Mr Turnquest said a resolution could wait no longer.

"It's clear that the Grand Bahama economy has stalled, and we understand and need to do something to cause development to happen and spur economic activity, so this is high on the agenda," he told Tribune Business.

"There are a number of active buyers still in play, and it's a matter of us executing on our strategy in the interim while we wait for the private sector partners, so we don't get caught flat-footed if we have to participate."

The Government has talked to both Memories and its Sunwing affiliate, and the Port Lucaya Marketplace's owners, in a bid to develop a Grand Lucayan solution. The latter subsequently unveiled a $350m million 'master plan' to turn the area into a destination experience.

Meanwhile, Freeport's available hotel rooms and room nights sold fell by 234,805 and 148,509 respectively for the first eight months of 2017. The former fell from 407,026 to 172,221, while the latter dropped from 248,620 to 100,111.

The Minister of Tourism said Freeport's "very poor showing" as a result of the Grand Lucayan's closure had "affected the entire tourism performance of the country".

And Dionisio D'Aguilar revealed that potential private sector buyers for the Grand Lucayan wanted such huge multi-million dollar subsidies that the Government would have "effectively been paying the mortgage itself".

Explaining that the Government was reluctant to assume such huge risk on investors' behalf, Mr D'Aguilar said it was seeking a sustainable solution where an investor/owner could realise profits without draining the Treasury.

"It's really frustrating, because we all want to do something," he told Tribune Business. "What is incredibly vexing for us is the transactions the private sector have brought to the Government are just not palatable.

"The deals have not been palatable. We're cutting Freeport a lot of slack, and if we're going to compromise this and compromise that to get a deal, it's just not palatable."

Mr D'Aguilar continued: "When the first deal came along with the subsidy, we'd effectively have been paying the mortgage. We might as well have paid the mortgage ourselves. There were many factors that caused us to reject that, one of which I can honestly say was the size of subsidy."

The Minister indicated he was talking about the Wynn Group offer. Tribune Business previously reported that Wynn had requested such subsidies from the Government, although it these were said to be of similar value to what previous administrations had offered.

Mr D'Aguilar, though, said the Government wanted investors to have "certain attributes", such as an ability to improve the resort product being acquired. "We just don't want to give anybody a subsidy for the sake of a subsidy," he told Tribune Business.

"We want to provide incentives but nurture the private sector entrepreneurial gene to grow the property. We don't want them to rely on that for their existence. We want them to be innovative and entrepreneurial so that the project stands on its own without the subsidy.

"Everyone in that Cabinet room understands the frustration. This is why it's such a vexing problem and has gone on for such a long time. We're trying to make it as palatable for the Bahamian people as possible," Mr D'Aguilar continued.

"We can pay thousands of people to come to Freeport, but we can't sustain that model. We don't want to bankrupt the Treasury in the process. It's got to make sense."