The Grand Lucayan resort.
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Government was “too nice” in allowing Hutchison Whampoa to exit its Grand Lucayan debacle without paying $3.25m in Stamp duty and pocketing other payments/concessions.
The sales agreement, formally released yesterday as the Government tabled the resolution seeking Parliamentary approval to guarantee $35m in funding for the resort’s purchase, reveals that the Minnis administration agreed to pay 100 percent of the Stamp Duty associated with the resort’s sale.
Hutchison Whampoa has also been allowed to keep all the insurance proceeds it received for Hurricane Matthew-related damage at the Grand Lucayan, which are estimated to be between $80-$85m, even though the original claim submitted was for $120m.
The documents then show that the subsidy due to the Hong Kong conglomerate for keeping Freeport’s sole mega resort property open beyond August 1, 2018, is $1.5m per month- not $1m as reported earlier this week.
This will ultimately total $2m to cover the first 11 days in September. The sales agreement refers to $1m being paid upon the deal’s signing on August 15, 2018, and a “balance of $1m” then being paid by the Government in seven separate installments of $143,000.
The sales agreement, and related annexes, give some insight into the extent of the costs and liabilities that the Government has taken on in acquiring the Grand Lucayan. For starters, it has inherited a $4.5m annual insurance policy for property damage/business interruption coverage with RoyalStar Assurance.
Given that this was taken out on June 1, 2018, and the Government’s purchase was completed on September 11, it appears likely that the latter will now become responsible for reimbursing Hutchison Whampoa for nine-and-a-half months’ worth of premium payments - equivalent to more than $3.3m.
This is because the agreement calls for the Government and Hutchison Whampoa to “prorate”, or agree to allocate to one another, their due portions of the Grand Lucayan’s taxes and expenses due before and after the completion date.
Multiple sources familiar with developments, and speaking to Tribune Business on condition of anonymity, said Hutchison Whampoa appeared to have received “everything” it wanted from the Government over the Grand Lucayan’s sale.
They suggested the deal was not negotiated by Lucayan Renewal Holdings, the Government-owned special purpose vehicle (SPV) created to own the resort, given that its Board is populated by experienced commercial transaction attorneys such as Michael Scott, Terence Gape and Carey Leonard.
“They got everything. I don’t know who the hell negotiated with Hutchison,” one well-informed contact said yesterday. “Why is it that every deal the Government does they forgive the Stamp Duty when they don’t do it for anyone else? It’s ridiculous.
“That was all handled between the Government and Hutchison directly. We should have given Hutchison $1 in my opinion, but the Prime Minister kept saying: ‘We can’t let it close, we can’t let it close’.”
The dates in the sales agreement, and subsidy demand, indicate the Government moved swiftly to agree a deal given Hutchison Whampoa’s seeming threat to close the Grand Lucayan’s last remaining property, the 196-room Lighthouse Pointe, in August once the last Hurricane Matthew insurance payment was received.
“They should have called Hutchison in, hauled them over the coals and said this is what we will pay you,” one source added. “We went cap in hand, said we have no money and will pay you what you want. That’s what happened.
“We went to Hutchison and said: ‘Nail me to the wall’. It’s going to be a lot of money. Expenses are going to be through the roof. It’s going to look terrible.”
Much now depends on how quickly the Government can fulfill its promised objective of exiting the Grand Lucayan’s ownership quickly and, more importantly, finding a Freeport version of Sir Sol Kerzner or Sarkis Izmirlian with the capital, vision and passion to redevelop the resort and build a new tourist market from scratch. Accomplish this and any issues over the purchase will be forgotten, especially if Freeport’s - and, by extension, Grand Bahama’s - economy comes back to life.
The 10 percent Stamp Duty on real estate transactions/conveyancings is normally split 50/50 between buyer and seller. Given the $65m purchase price, the total Stamp Duty generated by the Grand Lucayan’s sale would have been $6.5m. And, if split evenly, this would have resulted in Hutchison Whampoa paying $3.25m.
However, the sales agreement only commits the Hong Kong conglomerate to paying its own legal fees. “On the completion date the purchaser [the Government] shall pay.... any Stamp Duty associated with the sale of the property (including the Stamp Duty payable on the conveyance and the mortgage) and any other taxes,” the document reads.
The Government has thus relinquished some $3.25m in much-needed taxes, although its losses are minimised because it will effectively be paying Stamp Duty to itself.
Elsewhere, the sales agreement also confirms that excluded from the Grand Lucayan’s sale are “any insurance proceeds relating to the period prior to the completion date”. This means the Hurricane Matthew payouts are gone, leaving the Government with a potential $35m repair bill for the entire property as revealed by Tribune Business last week.
The subsidy paid to Hutchison Whampoa is also greater than previously allowed for. “The vendors [Hutchison] warrant and represent to, and covenant with the purchaser, to keep the Lighthouse Pointe open until completion of the sale provided that the purchaser pays a subsidy to Hutchison Lucaya Ltd of $1.5m per month commencing from August 1, 2018, until the completion date to cover the resort’s operating losses,” the sales agreement stipulates.
This indicates that Hutchison Whampoa will walk away with a total $2m subsidy, half of which - some $1m - was paid when the Government signed the deal on August 15, 2018. The $1m balance is to be paid in seven installments of $143,000, with the timing to coincide with when the Government bond issues underwriting the purchase price financing need to be repaid.
The sales agreement adds that the $1m balance “shall immediately become due and payable” if the closing date was missed. Tribune Business was reassured that while the “legal completion” of the deal is scheduled for this Friday, the actual closing took place as planned on September 11 because this was when Lucayan Renewal Holdings officially took over operations.
Hutchison Whampoa is seemingly departing with much more than its target $65m purchase price. Besides the insurance proceeds, operating subsidy and other concessions, it will also earn 4 percent interest on the seven $5m bond tranches that the Government will issue in return for providing vendor financing to close the deal.
The Government, meanwhile, will inherit expenses such as the 75 percent employer-funded medical insurance plan for employees. It will also have to wade through multiple service, maintenance and IT contracts, some of which cost up to $84,000 per month.
That particular deal relates to security services for the Grand Lucayan. The resort has also been paying two employment agencies, Universal Employment and Total Education Centre (TEC) an average of $40,000 and $12,000 per month, respectively, for the provision of temporary workers.
Maintenance contracts peak ay $19,914 per month for landscaping work by Sanitation Services, while the Grand Lucayan is supported by 16 different IT providers earning up to $36,000 annually.
Comments
bogart 5 years, 7 months ago
Where is the Minister of Finance on this......prior to any sale there is the Agreement for Sale ......with the SELLER......having the say on the Stamp Duty in determining the final sale proceeds coming to them....NETT OR GROSS ...the seller....prior agreement would similarly be mindful of the severincing oof the workers in terms of severincing labour contract in taking payment package...some $1 M ....plus employee pemsion plams etc...inventory....chattells....contracts.....the seller always knows the nett proceeds ..they want..and the BUYER....has some say negotiatev PRIOR ...what they have the money to pay for.....Aĺ dese costs are not known after....but....before...dats the way business is done.....
Dawes 5 years, 7 months ago
I would imagine the negotiations went something like this: Hutchinson walks in and tell the government they would like them to bend over, and Government looks at The Bahamas and tells them to bend. Another example of how useless this Government is.
birdiestrachan 5 years, 7 months ago
They all see who doc is.. There is a saying when you dumb you dangerous. He boast no investor will hold a gun to his head.. No doc all that is need is a Pen.
The Lost is not minimize the Hospital is in need of funds. ITS the peoples time for sure.
Sickened 5 years, 7 months ago
"No doc all that is need is a Pen." Lol! Good one Birdie.
proudloudandfnm 5 years, 7 months ago
Can't tell the difference between this FNM and Perry's PLP....
This country is in deep shit. Next PM? Brave (I aint worth a crap) Davies.
We need a viable third party desperately. And not the DNA and their team of children...
Sickened 5 years, 7 months ago
I listened to Brave today in parliament. The little I could understand was too jokey. I can see why Perry made him sit small in the corner. He ain't ready!
TalRussell 5 years, 7 months ago
Why Why Why if this is the parts of the hotel's purchase the Imperial red shirts crown ministers just couldn't find way keep secret off floor of what was once upon time before 10 May 2017, the Comrade People's Honourable House of Assembly... can you imagine what they don't never ever want it be the Comrade People's Time to ever ever know about. I think most know why why why these 35 Imperial red shirts MP's - does belong to against they will - be made board bus for ride up to that terrible walled-in place be sent away for long long 5 term - life time.... but whatever you do - do not allow them teach fellow patients - no courses in mathematics. Amen!
BahamasForBahamians 5 years, 7 months ago
Lol...
Worst PM ever.
TalRussell 5 years, 7 months ago
Grand Bahamalander's don't get this hotel purchase.
Proof the status quo change things Grand Bahamaland politics - cannot wait 2022 brungs to end. You've thinks a prime minister - would not have gone solo on negotiations buy a hotel - while ignoring a consult with the very bright team three comrade men's experienced commercial transactions such as Comrades Michael, Terence and Carey. For sure, the once again Grand Bahamalander's - who are now once again being so wounded by their elected MP's - cannot carry on with allowing Imperial red shirts MP's stay in House all way through 2022.
Why such silence from AG Carl Wilshire, minister finance KP and tourism minister Dionisio James - who whilst in opposition had so forcefully and regularly had publicly spoken out against former government's committing publicpurse's monies Baha Mar?
TheMadHatter 5 years, 7 months ago
You can't tax the Chinese - dey gats ball-head and deys do kung fu.
BahamaPundit 5 years, 7 months ago
Minnis is so bad, he causing me to rap Oh God, not another four years of this crap The PLP seemed crooked as lightning So we hired you to bring in the sunshine You promised us freedom of information But all we've received is contamination Your name should be Muddle not Minnis You're in a one horse race and still can't win it But worse than that, you treating us like We too dumb to ride a bike Bahamians ain't retarded like you Just cause you're slow don't think we are too In closing I'll say what makes me saddest of all Not this hotel deal that could ruin us all But that you come across as so corrupt Worse than Shane, Davis and Vomit I wouldn't do a deal with you If I had one dollar and you gave me two I think it's time you change, this is a reminder Or it'll be our time to kick your a_ _ to China.
Sickened 5 years, 7 months ago
Harsh critique... but I'm almost there as well in my thinking. Well... all but the corrupt bit.
John 5 years, 7 months ago
This is like a blind man going into a clothing store and the store keeper sells him a pair of pink pants, red shoes, yellow shirt with purple flowers with a green cap with reindeer horns on it. something no one else wants.and yet he still sneakingly raises up the prices on him.
BahamaPundit 5 years, 7 months ago
This hotel purchase can only be, generously, described as an act of gross negligence and incompetence or an act of devious fraud and corruption. Two wrongs don't make a right. Just because Grand Bahama's economy is hurting does not give the FNM the right to make a bad deal with zero negotiation, due dilligence, business plan and financial impact analysis. Shame on the FNM. These are business men. They wouldn't do this deal to their own children, why do it to us.
OMG 5 years, 7 months ago
I just paid 45% duty on a pet cage, $10 customs handling and 12% on everything. Can I be let off these ridiculous charges ???
Sickened 5 years, 7 months ago
Hell no! We need the money.
The_Oracle 5 years, 7 months ago
The Bahamas Government is in no position to tell Hutchinson anything. As an extension of mainland China, the inverse is the case. Hutchinson could buy the country but it would be a waste of $$. Per their methods cheaper to await default and own it anyway.
BahamaPundit 5 years, 7 months ago
Re Sickened Minnis ran on a platform of completely and radically changing the status quo of corrupt majority rule politics of zero accountability and transparency in the Bahamas. Because of the radical platform he ran on, a contract he signed with the Bahamian people, he should be held (and is held) to a much much much higher standard than previous Bahamian Governments. His continuation of the status quo of zero transparency is in my books, therefore, corruption. His refusal to speedily pass basic laws such as the freedom of information act and make public audits of Bahamian companies (that we paid for) as well as not prosecuting the robber barons of BOB is corruption. Now, if we add to this the purchase of the Lucayan Hotel, Oban and BPL, we're taking it to an entire new level of corruption. The end result and sum may be one of the most corrupt regimes this nation has ever seen.
BahamaPundit 5 years, 7 months ago
And whatever happened to full disclosure of the Baha Mar deal that Minnis promised to unseal? How do we know that part of that deal was not the requirement that the Bahamas "post haste" join the WTO, so China has even more leverage over us. How do we know the Lucayan Hotel purchase is not also a requirement included in the Baha Mar deal? Without complete transparency, there cannot be accountability and without accountability there is corruption!
TalRussell 5 years, 7 months ago
Now this whampoa is not made up, okay.
Ma comrades. It is written into Purchase Agreement, which Imperial red shirts government duly executed that contains a provision that the deal does not include the inventory Toilet Paper nor the Silverware - that should Minnis and KP, decide they wanted keep them in the deal - Hutchison Whampoa would have agree to and accept written offer purchase said items along stated price.
TheMadHatter 5 years, 7 months ago
BahamaPundit says "How do we know the Lucayan Hotel purchase is not also a requirement included in the Baha Mar deal? "
That's one of the scariest things ive heard yet.
Where is Senator Henfield when we need him?
ThisIsOurs 5 years, 7 months ago
None of this is surprising. It's very frustrating, but the trajectory was set from the minute he appointed the FS. It's not so much the act itself but what it tells you about: his understanding of the seriousness of the problem, his understanding of the qualifications required to rectify the problem, his unwillingness to seek sage advice to find a suitable candidate and his absolute need to control everything. He appoints people he can control and those who put FNM above country. This fingerprint is duplicated everywhere, the debacle of Oban was no fluke. The Freeport tech hub is a consulting pipeline for the committee and nothing else.
The only open question is what are the other ten men in the room doing???? Well 8 men,minus Wells and Lloyd
Bonefishpete 5 years, 7 months ago
The loss of Stamp Tax I think will be the least of the hemorrhaging of Govt money once it's open.
gbgal 5 years, 6 months ago
And what did we get in return??
Sign in to comment
Or login with:
OpenID