The News of the Week – WE HAD A DEAL ON BAHA MAR! Then people suddenly went home…

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Deputy Director at BIS Elcott Coleby.
Deputy Director at BIS Elcott Coleby.

By Elcott Coleby

The bankruptcy filing by the Baha Mar group of companies in a Delaware court on Monday, 29th June 2015 and the subsequent law suits, court applications and proceedings that followed dominated news this week in The Bahamas. Even as Prime Minister executed is final official duty in Bridgetown, Barbados as the outgoing CARICOM Chairman, he spoke fairly extensively about the impact of Baha Mar on The Bahamas and the broader picture of the vulnerability of SIDS that rely on sizable Foreign Direct Investment for economic growth, development and stability.

WE HAD A DEAL

“Yet despite the good faith efforts of the government and its best endeavours, the developer chose instead to file for bankruptcy of the project in the American courts where the companies who own the project are registered. This was done without notice and with the developer sitting at the table on the face of it seeking a settlement.”

This sentiment expressed by Foreign Affairs Minister Hon. Fred Mitchell at a CARICOM roundtable dialogue summed up the feeling of the Bahamas government in the wake of the bankruptcy filing by Baha Mar without notice. He delivered these remarks on behalf of the Bahamas Prime Minister who had pressing matters at home and could not participate in the dialogue on Vibrant Societies on 2nd July. Court documents revealed that the chapter 11 protection filing was in progress for a number of months leading up to the 29th June 2015 filing event.

Readers would recall that Prime Minister Christie notified the House on the final day of the 2015/2016 budget debate of some encouraging news he received from the China Export Import Bank (EXIM Bank) on a settlement between the three principals that would pave the way forward for the stalled Baha Mar project. The Prime Minister indicated repeatedly that the priority of his government was the completion and opening of the resort.

But what was the deal in principle The Bahamas government thought they had secured through their “good faith efforts” and “best endeavours?” to move the project to completion? Sources claim that the cost to complete the project was pegged at $300 million. The financier, EXIM Bank, agreed to contribute half, or $150 million; the developer Sarkis Izmirlian would contribute $75 million and the China Construction Company would contribute $75 million. The EXIM Bank also required the project completion figure of $300 million to be certified by a reputed Quantity Surveyor in addition to a personal guarantee from the developer.

On the morning of 29th June 2015, the developer assured the government that a settlement was imminent and on course.

BAHA MAR FILES FOR BANKRUPTCY

On Monday, the 29th June 2015, the fifteen companies that make up Baha Mar filed for chapter 11 bankruptcy in a Delaware court to protect Baha Mar from its creditors including the financier, the EXIM Bank and the general contractor, China Construction of America (CCA); there were numerous Bahamian and foreign creditors. Fourteen of the fifteen companies that make up Baha Mar are listed in The Bahamas. In its press release on the court filing, Baha Mar said that it remained committed to the pursuit of an early and definitive settlement of outstanding differences with their creditors and thanked the Bahamas government for their work during this settlement process.

In his initial response to the bankruptcy news on Monday the 29th of June, Prime Minister Christie said the Bahamas government will not take sides, remains available to assist and remains hopeful that the resort will open and fulfills its promise.

“The government will not be taking anyone’s side” said the Prime Minister in a statement.

“The government continues to be available to all parties to assist in the mediation and resolution of their differences” continued the statement.

“The government” said the Prime Minister, “remains hopeful that with the continued exertion of good faith efforts by all concerned, the Baha Mar resort will not only open soon but will fulfill its promise as an important new dimension in Bahamian and regional tourism and one that will represent a major contributor to Bahamian employment.”

A LAWSUIT, ACCUSATIONS AND AN INVITATION

On Tuesday, 30th June 2015, Baha Mar made good on its threats of litigation and sued the China State Construction and Engineering Company for “breaches of contract” around work guarantees on the Baha Mar project. It filed a $192 million damages claim against China Construction of America’s (CCA) parent company in a United Kingdom High Court. The damages claim included $30 million to cover the cost of correcting shoddy and faulty work.

Weighing in was opposition leader Dr. Minnis who called a press conference Tuesday morning to accuse the Prime Minister of misleading the nation, withholding information and making public pronouncements not based in fact.

The Prime Minister shot back with his own press conference stating that Baha Mar filed for bankruptcy protection without notice even in the face of documented evidence of a “substantial agreement on a packaged solution” for funding to resume construction and complete the project.

“Yesterday, without notice, Baha Mar filed a bankruptcy Chapter 11 petition in Delaware USA. This action was taken at a point when my personal intervention over several months with all three parties involved, led to substantial agreement on a packaged solution for additional funding by China Export Import Bank, the resumption of construction work by the general contractor, and the project completion. This is supported by exchange of correspondence as recently as June 26” said the Prime Minister.

He also publicly invited the opposition leader to a briefing on the events leading up to the court filing.

“In the interest of promoting transparency and national unity on an issue that clearly transcends partisan politics, I invite the Leader of the Opposition to attend a briefing on the matter” said the Prime Minister.

Dr. Minnis did not show up for the briefing, citing a need to consult with his colleagues before accepting the Prime Minister’s invitation as the reason.

AG WANTS LOCAL ADJUDICATION OF BAHA MAR DISPUTE

On Wednesday of this week, the Delaware court Judge, Kevin Carey, approved Baha Mar to access $80 million in Debtor -in-Possession (DIP) funding to keep the resort on track for opening while it undergoes chapter 11. The approval by the US court was conditional, subject to the approval of the Supreme Court of The Bahamas, thus the filing of the application in the Supreme Court for local approval of the US court’s decision. The application was filed on Thursday with the government of The Bahamas as a respondent. In the end, Justice Winder adjourned the matter until Tuesday, 7th July with the EXIM bank joined with the government as respondents. Bahamas Attorney General Allyson Maynard-Gibson called a press conference immediately following the court hearing to put forth the government’s position on this dispute. Of significant concern was the issue of sovereignty and the rights of Bahamians.

“It is important that the public be made aware that the orders obtained unilaterally by the Baha Mar entities from the United States Bankruptcy Court in Delaware were obtained on the basis that matters profoundly affecting the Government and people of The Bahamas will be subject to adjudication in the United States. This would have serious and far-reaching implications for the Commonwealth of The Bahamas as a sovereign nation.

“The Government feels very strongly” continued the Attorney General, “that resolution of the disputes that have delayed the project should occur in the Bahamas, subject to adjudication (to the extent that they cannot be resolved consensually) by Bahamian courts, consistent with the sovereignty of The Bahamas.

“The Office of the Attorney General and the Government’s international lawyers are therefore examining options that will ensure that the courts of The Bahamas are front and centre in this matter.”

The government extended to Baha Mar concessions totaling $1 billion; Bahamian creditors are owed some $123 million and crown land form part of the Baha Mar asset portfolio, therefore the issue of sovereignty stands prominently and the government fully intends to take a leading role in this bankruptcy process.

As the court adjournment blocked Baha Mar from accessing DIP funding, the government agreed to pay the salaries of the 2,400 workers for one month via the Hotel Corporation of The Bahamas at a cost of $7.5 million.

Legal arguments continue in the Supreme Court on Tuesday of next week so please stay tuned.

PRIME MINISTER CHRISTIE BIDS FAREWELL AS CARICOM CHAIR

In his farewell address to fellow colleague heads of CARICOM, outgoing chairman Bahamas Prime Minister the Rt. Hon. Perry G. Christie warned of the vulnerabilities facing Small Island Developing States like The Bahamas, using the experience of Baha Mar as a teachable moment. He pointed out that regardless of the development model chosen, when all else fail it is the government that must ultimately step up to the plate. Following is an excerpt of that speech:

“When you visited Nassau in February, we met in an atmosphere in The Bahamas that the US three billion dollar hotel project was nearing completion. Thousands of jobs were riding on that fact. Sadly events in the last few days have caused us to pause. The developer without notice filed for bankruptcy under the laws of the United States.

“This shows the complexity of our regional international relations and the international nature of our economies. In our case, it involves US bankruptcy laws, Chinese capital and construction expertise, Bahamian assets. We are therefore now at a critical time which requires the superintendence of the government.

“The more general lesson for us all is that no matter how people speak of new models for development in our region, at the end of the day, the entity of last resort, the entity that must step up to the plate when all else fails is the government. I have never shirked from that fact throughout my public life and I pledge that in this case, my government will see it through.

“When we tell our international partners that GDP per capita should not be the sole determinant for the question of the economic support that is to be given our region but that they must take into account the vulnerability to economic shocks, the instant example is illustrative. A single large investor can when it collapses throw an entire country out of whack. Similarly, one hurricane can wipe out the GDP of an entire country three fold. We must continue the fight on this issue and it is certainly the message that The Bahamas will take to Addis Ababa next week and to Paris in December.”

BAHAMAS GG AND DPM TOAST THE US ON ITS 239TH BIRTHDAY

Political leaders, senior government officials and invited guests joined US officials in celebrating that country’s 239th independence anniversary on Thursday evening at the residence of the US Ambassador at Lookout Point. Delivering the country statement was head of state, Her Excellency Dame Marguerite Pindling.

“Make sure that on the American calendar, no day is more significant than the 4th of July in which is celebrated the launch of the profound declaration of independence in 1776. In addition to the proclamation of independence, let me also foreshadow the emergence of a new and sovereign nation dedicated to existing under God and pledging liberty and justice for all” said the Governor General.

Also on hand to celebrate with our friends to the north was Deputy Prime Minister the Hon. Philip Brave Davis.

MINISTRY OF FINANCE RESPONDS TO STANDARD AND POORS

The Baha Mar bankruptcy filing in Delaware on Monday past placed a spotlight on country’s debt ratings by Standard and Poors. On Thursday, the credit ratings agency placed The Bahamas on “negative credit watch” as the Baha Mar dispute unfolded

The Ministry of Finance issued a statement taking note of S&P’s observation pointing out that S&P analysts are scheduled to make their regular mission to The Bahamas later this month and conduct a full economic and fiscal assessment.

The Ministry of Finance welcomed the positive news however about the country’s fiscal reforms that generated “a favorable review of progress made in improving the fiscal health of the Government, particularly through the gains from the introduction of the VAT and disciplined public expenditure. These reforms will continue, in order to anchor a medium-term reduction in the Government’s debt burden” said the Ministry in its statement.

The statement reiterated that “the Government is committed to achieving a speedy resolution that would permit the works at Baha Mar to resume and the property to open without much further delay.”

CALENDAR OF EVENTS FOR OUR 42ND INDEPENDENCE CELEBRATIONS

* 3rd July at 10am is National Pride Day at Rawson and Parliament Squares

* 5th July at 5:30pm is the Beat Retreat at Rawson and Parliament Squares

* 6th July at 7pm is the Independence Children’s Concert at the College of The Bahamas

* 8th July at 7pm is ceremony honouring 42 Bahamian legends at Pompey Square

* 9th July at 10am is the unveiling of the Sir Lynden Pindling Statue at the LPIA

* 9th July at 8pm is the 42nd Anniversary Celebrations at Clifford Park

* 10th July at 1am is People’s Love and Unity Rush on Bay Street

* 10th July at 8pm is the State Reception at Government House

* 21st July at 7pm is the welcome reception for Klay Thompson at the Melia Resort

* 23rd July at8pm is the naming of the entrance to the Queen Elizabeth Sports Center in honour of Bahamian Basketball sensation, Mychal “Sweetbells” Thompson.

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