The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Christie administration's continued payment of $300,000 per month to Hutchison Whampoa, despite the Memories resort's closure, is central to an ongoing dispute over the Government's Grand Lucayan deal.

Tribune Business can reveal that, as part of the deal to entice Canadian tour operator, Sunwing, to open the former Reef hotel with its Memories brand, the former government agreed to guarantee its monthly lease/rental payments to the Hong Kong-based conglomerate.

Memories' deal foundered after Hutchison Whampoa, as landlord, failed to repair Hurricane Matthew-related damage to the property in the aftermath of the October 2016 storm, resulting in the Canadian resort's January 2017 departure with 400-500 direct job losses.

But well-placed sources yesterday informed Tribune Business that despite the Memories pull-out effectively terminating the lease, the Christie administration decided to honour the guarantee by paying Hutchison Whampoa the $300,000 per month rental fee from January 2017 onwards.

This newspaper understands that the Minnis administration has continued that arrangement since taking office last May, and Hutchison Whampoa is now demanding that rent it deems due and owing under the guarantee be paid to it as part of the "closing costs" settlement with the Government over its purchase.

Michael Scott, chairman of Lucayan Renewal Holdings, the Government-owned special purpose vehicle (SPV) that now controls the Grand Lucayan, last night confirmed there was a dispute with Hutchison Whampoa over "the final accounts" but declined to go into detail.

He said the issue would have no impact on the Government's acquisition of Freeport's sole remaining "mega resort" property, as "the deal is done", but said the terms and costs presented by the Hong Kong conglomerate were unacceptable.

"They've presented us with a closing statement which we have not agreed, and are trying to sort it out with them," Mr Scott told Tribune Business. "The deal is done, but we haven't settled the closing of accounts yet. We haven't finished yet."

The "closing of accounts" typically relates to a purchaser and seller settling how much the former should pay for inventory, such as food and beverage supplies, that they inherit upon the completion of a hotel purchase.

A well-placed Tribune Business source, speaking on condition of anonymity, confirmed that "trying to agree the final numbers, the accounts" on the Grand Lucayan's inventories was another issue yet to be settled.

They revealed that Lucayan Renewal Holdings had hired a team of accountants to assess, and value, the inventories inherited after being presented with a series of bills by Hutchison Whampoa.

The Memories lease payment, though, continues to be the main contention, with the SPV's Board understood to have been shocked that the guarantee was honoured despite the lease termination - thereby saddling Bahamian taxpayers and the Public Treasury with another burden they could ill-afford.

"Some time in 2012-2013, there was a tripartite agreement between Sunwing/Memories, the Government of The Bahamas and Hutchison whereby the Government guaranteed payment of the rent by Sunwing," the source said. "It was $300,000 a month.

"Hurricane Matthew came in October 2016. In this lease there was expressly omitted, and excluded, any responsibility on the part of Hutchison to repair Memories. Memories cancelled the lease, and the Government could have cancelled the guarantee as a result of force majeure. Yet the Christie government took a policy decision to continue to pay this thing."

The lease guarantee further exposes the drain on Bahamian taxpayers caused by the multi-million dollar annual subsidies paid to keep the Grand Lucayan open. The Prime Minister, in his House of Assembly address last week, said the former government's deal with Hutchison and Sunwing committed the Treasury to paying $21m per annum over seven years - a grand total of $147m.

Dr Minnis also pointed to the $159m subsidy requested by the Wynn Group, in its first revised offer, and its final bid that included a 20 percent electricity rate discount, hundreds of work permits, and Government guarantees to cover any losses and guarantee a 7 percent investment return as justification for why the Government believed it would be more effective, and cheaper, to acquire the Grand Lucayan itself.

The Memories lease also highlights the ever-growing costs that continue to be incurred by the Government, and slowly drip out, in relation to the Grand Lucayan deal. Besides the $65m purchase price, it has also committed to a $2m subsidy to cover Hutchison Whampoa's operating losses between August 1 and September 11, and waived the payment of $3.25m in Stamp Duty on the conveyancing by the Hong Kong conglomerate. The latter also walked away with $80-$85m in Hurricane Matthew insurance proceeds, rather than put them into repairs.

Other forthcoming costs will likely be severance packages, and monies owed to employees and their trade unions, while $35-$39m is the total repair bill facing the Government if it chooses to proceed with renovating all three Grand Lucayan properties. K P Turnquest, deputy prime minister, said the full financing costs could run as high as $124m - a sum still below the total Sunwing and Wynn subsidies.

"We're looking to see what costs we can cut," Mr Scott told Tribune Business yesterday. "We're still getting offers in, which I'm having vetted. We're having an appraisal done, which will be ready in 30 days; an updated appraisal for 2018.

"We're considering an exclusive marketing arrangement, which we need to get approval from the Government on. We're looking at that stuff." He said that determining which employees will leave, and the crafting of a severance offer package, would be "coming next week".

Another contact, familiar with developments, said Lucayan Renewal Holdings was also assessing whether it could obtain cheaper property and business interruption insurance than the current $4.5m annual premium paid to RoyalStar Assurance.

They revealed there was a suspicion that the premium was based on a $400m valuation of the Grand Lucayan's property assets, which was the sum it cost to build the resort, rather than the appraised value - which pegged its worth at $57m in 2015.

"There's lots of day-to-day items that Hutchison left unresolved," the source said. "Things like insurance, and they're arguing over inventories and value and things like that. It's not as if there was a complete deal and everything was in order.

"A lot of this stuff was done in such a hurry. It brings to light they have no real commercial lawyers in the Attorney General's Office."

The Government, squeezed by the collapse of Wynn's deal in July and Hutchison Whampoa's constant threat to close the resort, appears to have felt it had no choice but to accept the latter's terms as it hurriedly closed a deal by August 15, 2018.

The source said Lucayan Renewal Holdings had spent the last several days obtaining its Grand Bahama Port Authority (GBPA) licence and paying the necessary bond, and would be able to focus on future plans in the next seven to 10 days.

As for potential buyers, they added: "They've got everyone and their mother coming out of the woodwork. They're looking for people who are genuine."