$400 million needed to finish Bahamas megaresort, says developer

Nassau, Bahamas — Baha Mar CEO Sarkis Izmirlian has entreated the Export-Import Bank of China (CEXIM) to match the resort developer’s pledged $200 million jump-start for the stalled mega resort in a bid to stop general contractor China Construction America (CCA) from further holding Baha Mar “hostage”.

In a letter dated July 23 from Izmirlian to CEXIM president Liu Liange, the Baha Mar chief executive stated that Baha Mar and CCA were “no closer” to a solution for the deadlock surrounding the $3.5 billion project.

Given a series of costly delays, Izmirlian argued that it was no longer “prudent” for the developers to meet with CCA, and requested 50/50 financing for a $400 million new senior facility to fund the “completion, opening and stabilization” of the resort.

“In light of all these facts, we do not believe that continuing the discussion with CCA/CSCEC (China State Construction Engineering Corporation) is a prudent path.

“Because of CCA/CSCEC’s actions, we have had to file for Chapter 11, and because of their delays, the cost of completing Baha Mar has risen by $400 million,” Izmirlian said.

“Baha Mar believes the resort is approximately 97 percent complete and knows, as does the bank, that Baha Mar must open to generate operational revenue and in order to open the project must be 100 percent completed.

“What hotel guest would want to come to a resort that is only ‘substantially complete’? Time is of the essence.”

In aiming for a “rapid” completion of the project, Izmirlian aims to deploy a share of that financing to hire Bahamian contractors to step up and complete CCA’s work on the resort, though Baha Mar remained in negotiations for Chinese general contractors “to assist if needed”.

While Izmirlian stated that the developers already had a plan in place for the CEXIM Bank, the letter does not divulge from where Izmirlian planned to draw the $200 million in financing.

“In order to carry out the needed work, Baha Mar wishes to retain certain Bahamian and other contractors and expand its agreements with certain engineers and consultants to oversee the work toward completion,” he said.

Blame game

In summing up the events that led to Baha Mar’s current status, Izmirlian noted that while it “[did] not matter what came before or whose fault it may be” that Baha Mar missed its December opening date, Izmirlian firmly placed the blame for the subsequent missed March 27 deadline on CCA’s shoulders.

Izmirlian charged that CEXIM representatives had earlier confirmed that the Baha Mar project would have remained on budget, had it met the March 27 opening date.

Izmirlian further accused CCA of inflating its invoices. According to Izmirlian, CCA submitted payment applications for CCA and its subcontractors valued at $343.8 million between February and May 2015.

“However, Izmirlian argued that CCA’s quantity surveyor AECOM Cost valued those same invoices at $76.1 million, 22 percent of CCA’s claim.

Izmirlian further notes in the letter that Baha Mar’s attempts to engage CCA and CSCEC had “repeatedly” proved fruitless.

The letter came after a ruling in the Bahamian courts.

Bahamian Supreme Court Justice Ian Winder last week denied Baha Mar’s application for recognition of its Chapter 11 bankruptcy proceedings in Delaware

Izmirlian hoped to receive a response to the proposal from CEXIM by Monday.

Terrible uncertainties

In the event of further breakdown in communication between the parties and no agreement on the $400 million in additional financing, Izmirlian argued that the legal battles sprawling over three jurisdictions would create “terrible uncertainties” for the project.

Although Bahamian Supreme Court Justice Ian Winder last week denied Baha Mar’s application for recognition of its Chapter 11 bankruptcy proceedings in Delaware, Izmirlian expressed his interest in resolving the pending US Chapter 11 cases once Baha Mar and CEXIM reached an agreement.

However, Baha Mar now faces the far more pressing matter of the government’s winding up petition, which would bring the company’s affairs under the control of Bahamian courts and the appointment of a provisional liquidator to complete the project.

Previous Baha Mar statements likened the possibility of a winding up exercise to “an attempted nationalization of a private investor’s assets” – a claim the government has strongly denied.

Similarly, the letter to Liu warns that appointing a liquidator would lead to management “upheaval”, making it virtually impossible to open the resort in a timely manner.

“However, if we cannot come to an agreement, proceeding down the legal path will create terrible uncertainties, will delay the opening of Baha Mar further, will put our staff’s livelihoods at risk and will further damage the Bahamian economy,” Izmirlian stated.

“The proposed solution by the government of the Bahamas of a provisional liquidator is not the best solution for the resort, or the bank.

“This is an extremely complex project with multiple management contracts with major international hotel brands (which owe $52 million in key money to the project), multiple leases with retailers, restaurant operators, residential condominiums sales, casino operations and so forth… In short, Baha Mar does not believe that a solution other than a negotiated solution between the existing sponsor and the bank is in the bank’s best short or long term interest.”

Winder will hear the winding-up petition on July 31.

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