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Payment Details Revealed For Grand Lucayan Purchase

The Grand Lucayan resort.

The Grand Lucayan resort.

By AVA TURNQUEST

Tribune Chief Reporter

aturnquest@tribunemedia.net

THE government intends to write a promissory note to Hutchinson Whampoa to complete the $65m purchase of the Grand Lucayan, The Tribune was told.

Last week, Prime Minister Dr Hubert Minnis revealed the government made a $10m down payment towards the purchase. The sale is expected to close within 30 days.

A high-level source revealed the schedule for the sale includes another $20m payment when the sale document is completed and the property is conveyed, and then $5m payments every six months until the balance is settled.

"We've agreed to pay $10m at the signing of the letter of intent," the government insider said, "and another $20m when the sale document is completed and property is conveyed to us. Then, every six months after that pay we'll pay $5m until the balance is liquidated. I believe there is interest on it, three percent.

"It's a promissory note. We're giving them a promissory note, it's not a strict loan in a sense. The government is going to borrow money but this whole transaction is an investment so we're acquiring an asset and it will not count towards our annual deficit. Now if the asset is impaired, if the value goes below what we paid for it, the deficit would have to be shown as a recurrent expenditure. That's what happened to Resolve (Bahamas)."

Resolve is the special purpose vehicle the Christie administration created in 2015 to clean up Bank of The Bahamas' balance sheet and go after loans the bank was unable to recover.

Yesterday, concerns over the lack of public information surrounding the Grand Lucayan deal were raised by president of the Bahamas Institute of Chartered Accountants Gowon Bowe, who called on the government to make it clear to the public how much it will lose over the deal, and the supporting documentation.

Mr Bowe called on the government to make public the cost/benefit analysis that led to the decision to purchase the resort, and its exit strategy if a sale is not realised.

He explained the hotel industry was a cut-throat business that did not leave much room for competing interests as potential investors have a significant advantage due to public disclosures.

The BICA president insisted a prudent buyer would not purchase the Grand Lucayan for more than the $65m paid by the government, and interest and operational costs will likely push the investment into deficit margins.

"If there were imminent parties," Mr Bowe said, "the reality is as soon as they take on ownership, any operating losses incurred up to that point will be on the account for the government. So if Lighthouse Point is running at a deficit, then those losses are actually going to accumulate on the balance sheet of the SPV board and will immediately impair the value. So we're effectively taking on operating loss, no buyer is going to say 'oh you made losses during the time you held it but I will pay for that too.'

"I would expect a clear and honest statement that the government is going to take a loss. Them buying head room is fine, but what they should be articulating is how much this head room is going to cost us.

"While many say we don't want hotel to close," Mr Bowe added, "the government owning it but not having capacity to open it in its entirety - does that stymie or prevent the same economic collapse they were trying to prevent?"

Mr Bowe's observations were echoed by the Official Opposition, which yesterday called for the full enactment of the Freedom of Information Act. The amended law was passed while the Progressive Liberal Party was in office but the party did not fully enact it before losing the 2017 general election.

PLP Deputy Leader and Ragged Island MP Chester Cooper questioned why the government moved to insert itself into a private transaction if there are interested buyers, instead of simply facilitating a direct transaction with the seller.

Mr Cooper said he supported the "noble" desire to seek out a Bahamian group to acquire the property but he found the "drip-drip" of information into the public domain "most disconcerting".

He stressed political maturity in such a critical time should have engendered a formal briefing of the Official Opposition, and then a clear statement to the country given Parliament's summer recess.

Mr Cooper suggested the lack of clarity raised suspicions that the risky move was done to line up a deal for special interests, adding it did not appear - based on reports - to make a new injection into the island's economy.

However, he noted the government has already made a commitment, and urged officials to expedite the sale and engage in an investment firm "to offload this resort in the shortest possible time frame with the greatest beneficial impact to the Bahamian people."

"Failure to do so will undoubtedly result in significant strain on the public purse and put further pressure on our sovereign credit rating, which we cannot bear," he continued.

Mr Cooper took issue with the reported turnaround by Tourism Minister Dionisio D'Aguilar, who initially told The Nassau Guardian the hotel would not be renovated but days later revealed it was under consideration by the government.

Speculating on the purchase timeline, he underscored the plan or costs associated with the deal have not been provided to the PLP or the wider public.

"The Minnis administration owes the public a duty of care to release full the details of the Our Lucaya purchase, its motivation and strategy moving forward," said Mr Cooper in a statement.

"To date, we have heard only a patchwork of ministers and the chairman of the Hotel Corporation giving sparse information that changes from day to day. The prime minister remains mum on the resort purchase for months until he lets slip during an FNM meeting that the government will explore buying it, then announces that it has already paid $10 million toward its purchase," Mr Cooper said.

"With all the uncertainty and lack of clarity surrounding what the government is doing," Mr Cooper added, "I call for the bringing into full force of the Freedom of Information Act that this government marched for."

Comments

TheWatcher 2 months, 2 weeks ago

"THE government intends to write a promissory note to Hutchinson Whampoa to complete the $65m purchase of the Grand Lucayan"

Okay so the government is doing some kind of seller financing. Wonderful.

"We've agreed to pay $10m at the signing of the letter of intent," the government insider said, "and another $20m when the sale document is completed and property is conveyed to us. Then, every six months after that pay we'll pay $5m until the balance is liquidated. **I believe there is interest on it, three percent".**

Great Hutch can make a extra milli on the sale nothing wrong with that right?

"It's a promissory note. We're giving them a promissory note, it's not a strict loan in a sense. The government is going to borrow money but this whole transaction is an investment so **we're acquiring an asset and it will not count towards our annual deficit. Now if the asset is impaired, if the value goes below what we paid for it, the deficit would have to be shown as a recurrent expenditure**.

So this is not an expense everybody its an investment as long as you're willing to go to the financial land of make believe and pretend that there will be no loss when it is sold, even though the chairman of the board is expecting a hit on the sale.

Take a look at Greece to see how well all this SPV and other creative accounting tricks in order to hide debt and window dress the books works out.

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joeblow 2 months, 2 weeks ago

It seems politicians can only make deals for SELF enrichment not for national benefit!

Wonder what they doing with the increased VAT revenue?

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