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Grand Lucayan Buyer: 'I Admit I Was Asking A Lot'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Grand Lucayan's last potential buyer yesterday confirmed he sought a 20 percent electricity rate discount and hundreds of work permits, saying: "I'm not denying I was asking a lot."

Paul Wynn, the Wynn Group's chief executive, told Tribune Business that any purchaser of the resort would require "hard core" taxpayer subsidies - especially to rebuild airlift - for the first several years after any deal was struck.

Describing Grand Bahama's lack of airlift as "the elephant in the room", Mr Wynn argued that significant investment incentives/concessions would be required to rebuild the island's tourism product "from scratch" regardless of which government is in power.

He spoke to this newspaper after the prime minister yesterday confirmed that Wynn Group's escalating demands for taxpayer subsidies peaked at such a level that the Government had no option but to reject its offer and fall back on plans to acquire the Grand Lucayan itself.

Dr Hubert Minnis, addressing the House of Assembly, said the Toronto-based developer's final demands - issued in July 2018 - required the Government to fund any losses it incurred and guarantee it earned a profits return of seven percent.

It also wanted the Government "to ensure" it obtained a 20 percent discount to the prevailing electricity rate - something that may have been difficult to arrange, since the Grand Lucayan is supplied by a privately-owned company in the shape of Grand Bahama Power Company (GBPC).

Dr Minnis also revealed that Wynn wanted permission to employ 420 expatriate workers on construction at the Grand Lucayan, plus gain pre-approval for the resort's full-time workforce to be 15 percent non-Bahamian without the need to obtain work permits.

Other demands included the Government "committing to buying or building a new airport" for Grand Bahama within two years; a tax-free casino operation; and annual marketing subsidies of $750,000 per year. Wynn and the Grand Lucayan would also not be subject to any tax increases.

Wynn's deal, in its final form, was supposed to be a joint venture with the Government, but the Canadian developer - currently working on its $120m Gold Wynn project at Goodman's Bay in New Providence - wanted the Minnis administration to fund its 15 percent equity stake "up front instead of over time" as previously agreed.

The Prime Minister yesterday indicated that Wynn sought to change the terms of their deal at the last-minute, just as the need to conclude the Grand Lucayan's purchase was becoming critical amid Hutchison Whampoa's repeated threats to close Freeport's last mega resort property.

The type, and extent, of the incentives requested were impossible for the Government to stomach, Dr Minnis said, confirming previous Tribune Business reports that Wynn had wanted Bahamian taxpayers to finance the $65m purchase for it, and cover any losses and construction/repair costs, through the Public Treasury.

"We again arrived at a point where we had a draft Heads of Agreement," the Prime Minister said, recalling developments in July 2018. "However, after we gave Mr Wynn an absolute deadline to complete he presented us with changes to the Heads of Agreement.

"The Government made it clear that the requested concessions could not be agreed. The escalated requests for concessions included an excessive number of work permits for both the construction and operating phases of the property, and requests for guaranteed returns on funds invested and requests for guaranteed coverage of any losses.

"When the total financial value of the concessions being requested for the initial 10-year period exceeded the acquisition price plus the estimated cost to renovate the property, the Government's decision on how to proceed on the Grand Lucayan became clearer."

Besides the $65m purchase price, Mr Wynn previously estimated that $45-$55m might be needed for resort renovations, and some $25m for airlift rebuilding/promotions. Based on the Prime Minister's remarks, it appears that the developer was seeking concessions worth around $150m or more.

Wynn's last-minute squeeze play seemingly forced the Government into 'Plan B', and a rushed, hasty deal to purchase the Grand Lucayan itself. The sales agreement with Hutchison Whampoa was signed on August 15, 2018, indicating the Minnis administration moved rapidly to finish negotiations amid fears the resort's remaining Lighthouse Pointe property would be closed.

Mr Wynn, when contacted by Tribune Business, said he could not recall asking Bahamian taxpayers (through the Government/Treasury) to cover his financial losses and guarantee a 7 percent return on funds invested.

He pointed out, though, that he had never hidden from his position that massive subsidies would be required by any Grand Lucayan buyer - whether himself or someone else - to counter the Bahamas' high operating costs, rebuild the stopover tourism product and make the deal commercially viable.

Confirming the electricity rate and work permit requests, Mr Wynn told Tribune Business: "I was asking a lot. I did say it. I'm not denying it; it's a fact.

"Whatever it was, it was subject to negotiation, but I always said that without the airlift everything is irrelevant. It needs the airlift. I said that if we get the airlift, everything else [the value of other investment incentives] comes down."

Mr Wynn said "you can dress up the hotel all you want", but without airlift to key North American tourist markets to bring in the necessary stopover visitor volume, the Grand Lucayan and surrounding strip/destination would still fail to perform.

"Really the most important subsidy to us was the subsidy to bring in the airlift," he added. "There's not going to be any airlift without some sort of subsidy. There's nowhere to go. Without airlift it doesn't matter what hotel is there; it can't survive.

"Nassau has a tremendous, tremendous advantage with the airport it has. Freeport does not have it. You have to build it from scratch. That's an expensive proposition for whoever's in power, whoever owns it [the Grand Lucayan].

"It needs some hard core subsidies for the first few years until it levels off. There's no other option. I don't care who is in there, AMR or Sunwing, you have to bring it in. It's the elephant in the room that no one wants to talk about."

Wynn had initially teamed with Sunwing, part of the giant TUI travel group, and its Memories affiliate as hotel operator/airline partners. Sunwing withdrew prior to Wynn's pull-out, and Mr Wynn acknowledged that the "substantial amount" of airlift subsidy it had sought would have been difficult for the Government to agree to.

The Canadian developer said The Bahamas was caught "between a rock and a hard place" in relation to the Grand Lucayan, since its high operating cost base and high-end tourism "brand" meant it could not compete with lower-priced, mid-market rivals such as Mexico, Jamaica and the Dominican Republic.

Mr Wynn cited the $300 per month labour costs; energy priced at 12 cents per kilowatt hour (KWh); and the ability to source most food and beverage needs at his Dominican Republic resort as examples of why The Bahamas could not reposition the Grand Lucayan to target the mid-priced market.

"I admire the Government for what they're doing. They're doing it for the right intentions," he told Tribune Business of its Grand Lucayan purchase. "I can't comment on how it's going to work out, as I'm not privy to their business plans. For the sake of Freeport, Grand Bahama and The Bahamas, I sincerely hope it works out."

Mr Wynn had previously told this newspaper he "feels much more comfortable" focusing on his Nassau interests, and up to $200m in investments in the capital, rather than seeking "massive subsidies" to make the Grand Lucayan project work.

Speaking in early August, he had conceded that Freeport's anchor property was "not for me" and he "can't do it", given that the potential purchase lacked "economic feasibility".

Substantial taxpayer subsidies for the Grand Lucayan, and Freeport's stopover tourism industry, are nothing new. These peaked at $29m per year under the last Ingraham administration, with the resort incurring average losses of between $11-$20m per year.

Dr Minnis yesterday disclosed that, in order to secure Sunwing and its Memories resort brand, the former Christie administration agreed to pay the Canadian companies and Hutchison Whampoa some $21m per year in subsidies over a seven-year period.

That amounted to $147m in total, and one source told Tribune Business: "The PLP were paying so many subsidies that they could have bought the hotel two times."

Dr Minnis, charting the history of Wynn's efforts to acquire the Grand Lucayan, said his government met a proposal to pay the Canadian some $17.5m in annual subsidies plus other costs when it took office in May 2017.

Wynn had sought an $8m "property subsidy" for the first three years post-acquisition, which would have dropped slightly to $7.2m in years four and five. It also wanted annual subsidies of $7m for airlift and $1.5m for the casino - the latter for a five-year term.

The Canadian developer also requested a one-off $2m payment within 60 days of closing the purchase, plus "Most Favoured Nation" status that would have meant no other Bahamas-based project would receive more favourable incentives than itself.

Following negotiations with Wynn, the Prime Minister said it again upped its subsidy/incentive demands to an "unacceptable" level of $22.93m per annum for the first five years. While this would have reduced to $9m for the next five, it would have committed the Government to paying $159.65 million in taxpayer monies to private entities over a single decade.

These subsidies were broken down into $8.5m as "landlord support" for Wynn; a further $9m for Canadian airlift/resort subsidy to Sunwing; $4m for US airlift; and a further $1.43m to Wynn and its resort operator, AMR.

Comments

birdiestrachan 1 year ago

Mr: Paul Winn was it you who doc told where to go and how deep? care to elaborate on that. What a comedy show put on for the people of the Bahamas.

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