BAHA MAR: The Saga Continues

28 August 2015

150828 Baha Mar Update - Image D


In Mike D’s report earlier report on the Baha Mar project in Bahamas (click here to view), he ended by stating that Baha Mar Limited (BML), developers of the US$3.5B resort, filed for Chapter 11 bankruptcy protection in Delaware, USA on June 29, 2015 claiming US$2.7B in debt.

BML’s goal was to give the company time to reorganize its capital structure as it is estimated that an additional US$400MM is required to complete the project which is 97% complete.

It also filed a lawsuit in the U.K. against China State Construction Engineering Corporation Limited (CSCEC) claiming breach of contract resulting in damages for delays in opening the resort and poor workmanship.

The four (4) main players at Baha Mar are:

  1. Baha Mar Limited (BML) which is owned by the Izmirlian family with a US$900MM equity investment in the project
  2. China Export-Import Bank with a US$2.45B loan in the project
  3. China Construction America (CCA), wholly-owned subsidiary of state-owned China State Construction Engineering Corporation Limited (CSCEC), a publicly-traded company on the Shanghai Stock Exchange with a minor equity (preferred shares) investment of US$150MM in the project and;
  4. The Government of Bahamas which is eager to have the resort open as it will provide 5,000 new jobs in an economy with a 15% unemployment rate and will provide a projected 12% boost to Bahamas GDP.


Bahamas Supreme Court Gets Involved 

On July 20, BML petitioned the Bahamas Supreme Court for recognition of the US bankruptcy proceedings. The Government objected as, should the matter not be handled locally, further delays and uncertainty may occur. In response, the Government filed a winding-up petition against BML at the Bahamas Supreme Court and had initially proposed PwC as the liquidator. The liquidator would be tasked with overseeing the restructuring of the company, especially the capital structure, and completing the project in the shortest possible time.  However, since PwC did previous work for CSCEC, CCAs parent company, that could be considered a conflict of interest.

On July 31, Judge Ian Winder agreed to delay the hearing, at the Government’s request, to give the Government time to propose a new liquidator.

Meanwhile, on July 22, the Bahamas Supreme Court had denied BML’s application for recognition of its American Chapter 11 bankruptcy.
On August 21, Judge Ian Winder heard arguments from BML and the Government on liquidation.  BML argued that a liquidator would have to find US$600MM to complete the project and they would be starting cold.  The Government argued that any further delays in Baha Mar puts the creditors and the interest of the public at risk (2,000 people were sent home when BML declared bankruptcy on June 29).

The Government also warned of a possible downgrade by Standard and Poor (S&P) looming and that for all practical purposes BML is an insolvent company and has been so for the past two months.  S&P had issued a negative credit watch on Bahamas investment grade on July 2 (three days after BML declared Chapter 11 bankruptcy).

The Government also proposed that the liquidator be Ernst & Young.

The Judge will rule on September 4 whether to approve the Government’s request to appoint a provisional liquidator to manage the affairs of bankrupt BML and, in essence, complete the megaresort.  Decisions to the Supreme Court can be appealed to the Court of Appeal and then to the Privy Council in the UK.

With Izmirlian, CCA and China Export-Import Bank all with deep pockets, the biggest loser would be the Bahamas Government and by extension the people of Bahamas.

U.S. Bankruptcy Court in Delaware, USA

On July 27 CCA China Export-Import Bank filed a motion in the Delaware court to have BML’s bankruptcy case dismissed.  CCA had earlier filed a similar motion in the same Delaware court.  Bankruptcy judge, Kevin Carey, in the US was scheduled to consider the two motions on August 17 and it is now scheduled for today (August 28).  In any case, Bahamas, as a sovereign country, does not have to recognize the US Court.

Izmirlian and Christie in happier times.

Izmirlian and Christie in happier times.








Government and BML Trade Blows

Late July – early August, BML’s billionaire-owner Izmirlian went public in the local press with contentious statements against the Government.  Izmirlian accused the Government of siding with CCA and China Export-Import Bank against BML stating that the Government’s actions are “questionable” and “disgusting”.

He also made some disparaging remarks (e.g. nationalization of the project) against the Prime Minister Perry Christie which caused an uproar.   The Immigration and Foreign Affairs Minister Fred Mitchell then intervened and issued a statement to Mr. Izmirlian that “massa” days were over and if he does not respect the Prime Minister’s office, his permanent residency will be revoked as the “entire Baha Mar debacle has challenged the country’s sovereignty and emancipation.  Also, Izmirlian’s criticism is offensive, improper and incompatible with the status of someone who is not Bahamian”.

Izmirlian is a citizen of Switzerland.

It's all smiles and handshakes until someone goes  bankrupt.

It’s all smiles and handshakes until someone goes bankrupt.








Talks in China

The four parties held talks in China on July 27-28 to address the additional funding of US$400MM needed to complete the project.  The Bahamas Government team was led by Attorney General Allison Maynard-Gibson.  Talks broke down mainly due to BML and China Export-Import Bank being unable to reach a deal and BML accusing the Bahamas Government of siding with CCA at the talks.

The proposals went as follows:

  • China Export-Import Bank would lend an additional US$200MM that must be guaranteed by either BML or CCA.
  • BML would provide a US$25MM Letter of Credit.
  • CCA would invest an additional US$100MM and provide a guarantee of US$175MM if it received corresponding guarantee of US$100MM from BML.
  • BML declined CCA’s proposal and proposed that the Bahamas Government provide a sovereign guarantee of US$175MM and CCA reduce its existing equity investment of US$150MM to US$75MM.
  • BML also made another proposal to eject CCA from the project and deal directly with China Export-Import Bank. Izmirlian’s proposal was to lend US$200M alongside China Export-Import Bank $200MM in a new senior facility totaling US$400MM.


CCA Not Moving

It’s incredible that Izmirlian would propose, at the talks in China, to eject CCA.  To propose that one Chinese state-owned company go against another Chinese state-owned company is mind-boggling.

On August 10, a US$250MM hotel project in Nassau called Pointe broke ground.  The 200 rooms, world-class shopping, fine dining options, and a 1000 car garage is expected to be completed in 2017.  This time CCA will be the the sole investor, developer and contractor on the Pointe Project. CCA’s parent, CSECS purchased the project lot and the adjacent British Colonial Hilton hotel in 2014.  The project will generate 250 construction jobs and fulltime employment for 500-Bahamians in direct operations and management for the hotel.  This project is nowhere on the scale of Baha Mar but it demonstrates that CCA will be in Bahamas for a long time and China has designs on the Caribbean.

Luxury Brand Rosewood wants out of Baha Mar Resorts

On August 21, Rosewood, one of the four hotel brands committed to the megaresort filed a motion in the same Delaware Court that BML filed for Chapter 11 bankruptcy, seeking to terminate its licence agreement with BML.  They listed numerous reasons including BML’s inability to secure funding to pay “key” hotel staff, the fact that BML is in Chapter 11 bankruptcy, and numerous defaults under various Rosewood Hotel Agreements that are incurable.

Standard and Poor (S&P) Downgrades Bahamas

As stated earlier, Bahamas was already put on a negative credit watch on July 2. With what has been taking place since, it is not surprising that S&P downgraded Bahamas on August 25 due to BML’s bankruptcy filing and the ongoing legal disputes.  The Bahamas sovereign credit rating is now BBB- from BBB.  This is the lowest Investment Grade rating and with the Bahamian economy experiencing negative real GDP per capita growth since 2008, a further downgrade may occur if the Baha Mar project does not open.

Bahamas Bond Movements since Downgrade

Bahamas has four bonds outstanding.  In general, since S&P’ s downgrade on August 25, there has been sharp declines, except for the longest maturity bond which has actually seen a sharp incline.  The following table is a look at the Bahamas outstanding bonds as at August 27, 2015 (indicatively):

150828 Baha Mar Update Table







A Look at the Way Forward

Firstly, if this goes the legal route, then by the time it’s over, you can expect the Bahamas to be further downgraded and worse, its citizens will suffer tremendously as unemployment is already high and fiscal indicators are not good. The other parties are well-endowed.

Secondly, since S&P downgraded the country before the September 4 date given by the Supreme Court judge on his verdict on the Government’s request to liquidate BML, then I wonder if he will not be swayed in the Government’s favour as he clearly knows the consequences to Bahamas.

Thirdly, all parties must agree to some kind of binding arbitration as they don’t seem to be even comfortable to be in the same room with each other.  Disparaging remarks in the local press will only make things worse.

Fourthly (and most importantly from a trading perspective), watch the bonds and their volatility as the future price may well be a good buy opportunity if this project that is 97% complete, is opened.  However, this megaresort has missed Dec 2014 and March 2015 opening dates and it is certain that it will also miss this winter peak season beginning in December.  These bonds have not bottomed out yet.

Fifthly, as stated in our August 3 report, China is in the Caribbean to stay.  Stay tuned for an upcoming article on this topic.

We’ll leave you with a picture of the 97% completed resort. All the drama aside, we wish our Bahamian neighbours a completed and successful resort in the near future.

Baha Mar, Bahamas

Baha Mar, Bahamas

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