Jamaica Gleaner

Baha Mar too big to be al­lowed to fail

- David Jes­sop is a con­sul­tant to the Caribbean Coun­cil. david.jes­sop@caribbean­coun­cil.org Business · Finance · Politics · Travel · Providence · Bahamas · China · Delaware · English · United States of America · Beijing · U.S. Supreme Court · Afghan Ministry of Foreign Affairs · Cuba · New Providence · Export and Import Bank of China · Bank of China · Air China · China State Construction Engineering Corporation Limited · China State Construction International Holdings · Perry

HARDLY A day passes with­out a new twist in the in­creas­ingly tense and ac­ri­mo­nious le­gal bat­tle over the un­fin­ished US$3.5 bil­lion Baha Mar re­sort on New Providence in The Ba­hamas.

Not only do the ef­fects of the re­cent de­ci­sion by the de­vel­op­ers to seek bank­ruptcy pro­tec­tion for the re­sort con­tinue to spread lo­cally, with far-reach­ing im­pli­ca­tions for em­ploy­ment and the re­sort’s lo­cal and in­ter­na­tional cred­i­tors, but it also now touches gov­ern­ment, the courts, na­tional sovereignt­y, do­mes­tic pol­i­tics, and po­ten­tially, in­vestor and tourism con­fi­dence, and The Ba­hamas’ re­la­tions with China.

So en­velop­ing and com­plex has the is­sue be­come that the im­pli­ca­tions of projects on a scale so large as to dwarf or skew a na­tional econ­omy de­serves wider re­flec­tion.

In The Ba­hamas, there are four main pro­tag­o­nists: Baha Mar and its CEO; Sarkis Izmir­lian; the Ex­port-Im­port Bank of China (CEXIM), which is fi­nanc­ing the re­sort; China Con­struc­tion Amer­i­cas (CCA) and its statelinke­d par­ent, the China State Con­struc­tion En­gi­neer­ing Cor­po­ra­tion (CHEC); and the gov­ern­ment of The Ba­hamas.

The ba­sic story is that af­ter grow­ing de­lays re­lated to the com­ple­tion and open­ing of the re­sort, the de­vel­op­ers filed for Chap­ter 11 bank­ruptcy pro­tec­tion in Delaware in or­der, they said, to be able to com­plete con­struc­tion and open as soon as prac­ti­cal.

Around the same time, Baha Mar filed a sep­a­rate suit un­der English law against the re­sort’s prin­ci­pal con­trac­tor seek­ing more than US$192m in dam­ages and in­ter­est to com­pen­sate for de­lays, al­leged sub­stan­dard work and for re­me­di­a­tion. CHEC was listed as the de­fen­dant.

FAR-REACH­ING IM­PLI­CA­TIONS

In the US, the court agreed to the Chap­ter 11 ap­pli­ca­tion and Baha Mar then sought an or­der in the Ba­hamian courts recog­nis­ing the rul­ing. How­ever, The Ba­hamas gov­ern­ment chal­lenged this, not­ing that it would have se­ri­ous and far-reach­ing im­pli­ca­tions for Ba­hamian sovereignt­y, and the Ba­hamian court de­nied Baha Mar ’s ap­pli­ca­tion for recog­ni­tion of its Chap­ter 11 bank­ruptcy pro­ceed­ings.

Sep­a­rately, the Chi­nese com­pany and the bank sought to have the US court dis­miss the bank­ruptcy case, ar­gu­ing that it be­longed in the courts of The Ba­hamas.

Then in a fur­ther twist fol­low­ing the fail­ure of dis­cus­sions in Bei­jing in­volv­ing all of the in­ter­ested par­ties, The Ba­hamas Prime Min­is­ter Perry Christie said that the coun­try’s at­tor­ney gen­eral would be­gin liq­ui­da­tion pro­ceed­ings to en­sure the re­sort is com­pleted.

Con­se­quently, on July 31, the Ba­hamian gov­ern­ment asked the is­lands’ Supreme Court to bring the com­pany’s af­fairs un­der the con­trol of the Ba­hamian courts and ap­point a liq­uida­tor to re­struc­ture, com­plete and then open the re­sort. How­ever, the mat­ter was ad­journed to Au­gust 19 in the hope that ne­go­ti­a­tions be­tween the devel­oper and the bank can re­solve the is­sue.

Un­for­tu­nately, since then, there have been a num­ber of po­ten­tially ex­plo­sive de­vel­op­ments.

Fol­low­ing the court ad­journ­ment, Baha Mar is­sued a state­ment that said that ‘the gov­ern­ment’s en­tire ap­pli­ca­tion is mis­guided and with­out merit, and the whole process is abu­sive, op­pres­sive and un­der­taken in bad faith’. Then, in a part of what was a largely bal­anced and per­sonal in­ter­view with a lo­cal ra­dio sta­tion, Star 106.5 FM, Baha Mar’s chief ex­ec­u­tive was highly crit­i­cal of the ad­vice the prime min­is­ter was re­ceiv­ing; the qual­ity of the work be­ing done by the Chi­nese con­trac­tor; and about com­ments re­port­edly made by the pro­vi­sional liq­uida­tor.

Mr Izmir­lian also said: “I don’t think it’s my place to com­ment on what other in­vestors may think or may say. The fu­ture will dic­tate how they feel about the ac­tions of the gov­ern­ment, and I think the vot­ers of The Ba­hamas will de­cide how they feel about the ac­tions of the gov­ern­ment of The Ba­hamas and that’s up to them to de­cide”.

The re­sponse was di­rect. The is­land’s Min­is­ter of For­eign Af­fairs and Immigratio­n Fred Mitchell, quoted in the lo­cal media, said that Mr Izmir­lian’s crit­i­cism was “of­fen­sive, im­proper and in­com­pat­i­ble with the sta­tus of some­one who is not a Ba­hamian” and did not “con­form with the mores of the con­duct of those who are eco­nomic guests in our coun­try”.

Since then, Baha Mar has given le­gal no­tice that it wishes to ques­tion the Chi­nese part­ners on “all com­mu­ni­ca­tions” be­tween them­selves and the gov­ern­ment since the Chap­ter 11 bank­ruptcy pro­tec­tion case was filed in the US on June 29.

It is now hard to imag­ine that any of this is go­ing to end well.

While the mat­ter is es­sen­tially a com­mer­cial one for the courts, the fail­ure to find a res­o­lu­tion though me­di­a­tion, and the now un­pre­dictable con­se­quences, con­tain mes­sages that go far be­yond what is an im­por­tant na­tional pro­ject for The Ba­hamas.

What is par­tic­u­larly ap­par­ent is that although projects of this size in­volv­ing ex­ter­nal in­vestors and lend­ing on a huge scale have the po­ten­tial to change the for­tunes of small na­tions, they be­come too big to fail. As with the sit­u­a­tion with the in­ter­na­tional in­vest­ment banks in 2007, if things go wrong and the ex­po­sure is dis­pro­por­tion­ate to that of the lo­cal econ­omy, the fall­out has the po­ten­tial to se­ri­ously dam­age any coun­try.

In a first demon­stra­tion of this, the in­ter­na­tional credit rat­ing agency Stan­dard & Poor’s has said that as a re­sult of Baha Mar’s de­ci­sion to file for bank­ruptcy, it is plac­ing the longterm and short-term for­eign and lo­cal cur­rency sov­er­eign credit rat­ings for The Ba­hamas on Cred­it­Watch.

Sec­ond, projects of this mag­ni­tude re­quire a huge de­gree of con­ti­nu­ity and trust be­tween gov­ern­ments, de­vel­op­ers and con­trac­tors, and a recog­ni­tion that fail­ure will re­sult in eco­nomic and rep­u­ta­tional dam­age to all par­ties. At a time when The Ba­hamas is the re­gional des­ti­na­tion most likely to be af­fected by the open­ing of Cuba to US visi­tors, it can­not af­ford to see dam­aged the strong des­ti­na­tion im­age Baha Mar was in­tended to pro­mote.

Third, this was the big­gest con­struc­tion pro­ject out­side China for CHEC. Their ex­pe­ri­ence with the pro­ject may raise ques­tions about China’s fu­ture will­ing­ness to fi­nance huge projects in the Caribbean.

And fourth, there is an im­plicit warn­ing in what has hap­pened that in small coun­tries, com­mer­cial dis­putes about big projects can rapidly have much larger na­tional eco­nomic and po­lit­i­cal ram­i­fi­ca­tions. It high­lights, too, the case for gov­ern­ments in their un­der­stand­able de­sire to ac­cel­er­ate eco­nomic growth and cre­ate em­ploy­ment, to take greater no­tice of lo­cal con­cerns about the im­pact huge in­vest­ments pose for lo­cal de­ci­sion mak­ing, and for the en­vi­ron­ment.

Ul­ti­mately, these are all mat­ters to be de­ter­mined be­tween the pro­tag­o­nists, but the is­sues speak about the need to re­solve the con­tra­dic­tion be­tween the re­gion’s height­ened sense of sovereignt­y, the re­quire­ments of huge in­vestors, and the need for growth; and how to re­late this to China’s im­por­tant re­gional role.

 ??  ?? Lobby of the Baha Mar casino.
Lobby of the Baha Mar casino.
 ??  ?? David Jes­sop
THE VIEW FROM EUROPE
David Jes­sop THE VIEW FROM EUROPE

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