Nassau Bahamas – July 17, 2015 (hospitalitybusinessnews.com) Over the past week officials of Baha Mar, China State Construction, and the Government of The Bahamas have all been in China holding meetings with Eximbank with a goal to come to an agreement on completing the $3.5B Hotel project.
As with most disputes of this nature it is unclear as to who is right and who is wrong. China State Construction states that Baha Mar owes them money and wants to be paid. Baha Mar says that they do not owe that much and that the workmanship on the project is shoddy. The fact that appears to be undisputed is that Baha Mar does not have enough money to complete the project and have enough remaining cash for working capital once the project opens.
In a speech to the Bahamian people, last night, the Prime Minister of The Bahamas Perry Christie said: “The project, by most informed estimates, is 97% completed but has missed two opening dates. Construction work has stopped and the general contractor and other contractors and sub-contractors are owed substantial sums of money. A dispute has also arisen between the developer and the general contractor. The balance of the existing loan from China Eximbank is insufficient to settle the amounts owed to contractors and sub-contractors and to complete the project. The Developer has sought to obtain additional construction funding from China Eximbank and the release of the balance remaining under the original loan. In this regard, the Developer solicited my intervention with Eximbank. Over the past several months, I have held a series of meetings and exchanged correspondence with the principals of Eximbank, China Construction and Baha Mar in order to seek a resolution of the various funding and construction issues, all with a view to completion of the project within the shortest possible time frame. ”
“Following direct discussions with the parties, my understanding at the end of June was that the only major outstanding financing issue was that Mr. Izmirlian would be required to provide a guarantee in respect to certain additional funding that Eximbank was willing in principle to advance. Under the terms of the additional loan the bank would contribute 50%, with the remaining 50% being divided equally between the Construction Company and the Developer, with each providing guarantees” the Prime Minister continued.
According to the Prime Minister, it became clear at the meetings in China that the money issue was far more severe than was first realized. “It transpired at the Beijing negotiations that Baha Mar’s additional funding requirements had increased considerably, and now included not only funding for completion of construction, but funding to meet start up and operating expenses; funding to cover other liabilities and deferral of principal and the initial balloon payments under the loan facility with Eximbank.”
So instead of funding to complete, it looks like there needs to be a whole new loan document negotiated and drawn up. In his speech the Prime Minister added “both Eximbank and China Construction Company demonstrated flexibility in meeting Baha Mar’s expanded funding requirements, and project completion date. This notwithstanding, Baha Mar still wanted an extended period for further negotiations which, however, was not acceptable. Baha Mar was also not prepared to agree to terms which would have included the immediate discontinuance of their Chapter 11 Bankruptcy proceedings in the United States and their legal action against China Construction in the United Kingdom. These terms were demanded by Eximbank and China Construction, and supported by the Government, as conditions to any agreement for additional funding, resumption of construction and project completion date.”
The issue at hand is that the Baha Mar project has massive financial implications for The Bahamas. Employment, Taxes all will have a major impact on whether the Bahamian economy grows or contracts.
The Prime Minister of the Bahamas needs to get this project completed and it appears that he will do what is needed. The Government is also upset that Baha Mar filed bankruptcy protection in the United States and not under the laws of the Bahamas.
“In this regard it goes without saying that the completion of the Baha Mar resort is a matter of the utmost national importance. Baha Mar must open! Whilst we certainly remain open to further discussions, my Government has taken the decision to seek to bring the Baha Mar development project under the control and supervision of the Bahamian Supreme Court, right here in The Bahamas. Consequently, on the advice of our Bahamian, U.K, and U.S. lawyers, The Attorney General has today filed a winding up petition in the Bahamas Supreme Court against the 14 Bahamian entities that filed for Chapter 11 protection in the United States at the end of June. These compulsory or involuntary winding-up proceedings are designed to work in very similar terms as a chapter 11 but with the stark difference that they will be controlled by provisional liquidators under the supervision of the Bahamian Courts rather than being controlled by Mr. Izmirlian. These liquidators, if appointed by the court, will be neutral and impartial professionals of the highest quality and of impeccable credentials” The Prime Minister stated.
The Prime Minister continued “Importantly, the role of the liquidators will be to expedite the resolution of the matter and to prepare a plan for the restructuring of Baha Mar, that will result in the earliest possible completion and opening of the project. The Bahamian court is familiar with using the provisional liquidation procedure as an effective tool to reorganise a company’s affairs. Indeed the well-known case of Charter Oil is an instructive example of how a major company in The Bahamas was placed in compulsory liquidation by its creditors, was successfully re-structured in the course of the liquidation, and then, by order Of Justice Harvey DaCosta, was able to come out of liquidation. At that point the liquidators dropped out and executive authority was restored to a new, reconstituted board of directors. Moreover, such a path is specifically provided for under the Companies (Winding-Up) (Amendment) Act 2011.”
This could be a good opportunity for a major hotel company or perhaps someone like Blackstone to come in and get an “almost ready to open” project along with a lot of concessions from the Bahamian Government who desperately need this project to be finished.
UPDATE – Friday July 17, 2015 – 3:44 PM Eastern
Baha Mar has issued the following response to the Bahamian Governments actions:
“The Bahamian Government’s decision to seek a winding up of Baha Mar is both unnecessary and reactionary, puts Baha Mar’s staff and assets at severe risk, and significantly jeopardizes the future of the resort.
Baha Mar senior officials have been and continue to be in China engaged in ongoing discussions with both the general contractor and the lender. Yet, notwithstanding those good faith discussions, the Government announced in the middle of the night it will seek to liquidate Baha Mar, creating a distraction from these ongoing discussions.
Here are the plain hard facts:
- Baha Mar adjourned a hearing on its application for recognition of the U.S. Bankruptcy Court’s orders until this coming Monday July 20th, such that the parties can negotiate a global resolution that would permit completion of the project. The matter was not adjourned for the Government to pursue legal remedies.
- Discussions seeking a consensual resolution between Baha Mar, China State Construction and The Export-Import Bank of China continued to take place in Beijing today—even as the Prime Minister implemented this unnecessary action.
- Baha Mar believes that these parties have developed an understanding of what is needed to finish the project and are willing to provide the required financing. As the Prime Minister had correctly stated to us, once the parties have agreed on such a pathway for consensual resolution, the rest is just details.
- The discussions were not ended; the Government left the ongoing discussions to follow its own path rather than to continue to act in a mediator capacity between the private parties as it had announced it would do.
- The Government fails to explain how availing itself of the Winding Up Act of Bahamian law provides more or better relief that the Chapter 11 process. The statute does not have the robust protections afforded to all creditors under Chapter 11. In effect the Government of The Bahamas legal maneuvers are an attempted nationalization of a private investor’s assets.
Further, Bahamas law itself provides for recognition of proceedings such as Chapter 11 to give legal effect on Bahamas soil. Such mutual recognition of cross border insolvencies is a common international legal standard existing among many countries.
- Many of the statements of the Prime Minister are just plain misleading:
- There was no agreement in June as the Prime Minister said. There was a not finalized understanding discussed by Baha Mar and The Export-Import Bank of China to which China State Construction and CCA had not agreed. Indeed, there was no construction timeline or cost to complete from the general contractor or terms received from the lender.
- Baha Mar has not refused to dismiss the Chapter 11. We have agreed to dismiss the case as soon as parties have a mutually-beneficial binding agreement to the benefit of all parties, an interest the Government should share, rather than taking actions that risk irreparably damaging the discussions.
- Even so, the Chapter 11 is not an attack on the sovereignty of the country in any manner. The application for the recognizing orders was not intended to enjoin any action by the Government.
- The project was on budget, even with a four month delay, had it opened on March 27th, the date that China State Construction repeatedly promised the developer and the Prime Minister, including during his visit to Beijing in January. The project continued to survive past that date, and employees were paid, in no small part due to contributions of more than $18 million by the Izmirlian family. The Izmirlian family has invested over $900 million in the project, has repeatedly announced its willingness to invest millions more, as recently as offering $80 million to Baha Mar last week.
We urge the Government of The Bahamas not to seize private party assets and to allow the private parties in what is after all a commercial enterprise to come to an agreement that would allow for the completion and opening of Baha Mar as soon as possible, as the Government has publically and explicitly urged.
For our part, Baha Mar is evaluating its alternatives with respect to addressing the Government’s precipitous action and will continue to move forward with its ongoing appropriate efforts to position the resort to be properly completed and opened successfully as soon as possible.”