The developer of the $3.5bn Baha Mar resort in the Bahamas, Baha Mar Ltd., has tried to eject the Chinese contractor that has built 97% of the mega resort by proposing to deal directly with the project’s main financier, the China Exim Bank.
It’s the latest manoeuvre in an extraordinary falling out that has drawn in the Chinese bank, one of China’s biggest state-owned firms and the government of the Bahamas – whose representatives were in Beijing until yesterday trying to resolve the issue.
The contractor, China Construction America’s Bahamas unit, CCA Bahamas Ltd., has reacted to the manoeuvre by accusing the developer of not paying for work done, and offering to invest extra cash of its own to ensure the completion of the project, which the Bahamian government considers one of national significance.
But in an escalation of bitter public exchanges, Baha Mar Ltd. on Monday (27 July) said CCA, which is trying to expand in the Americas, was trying to "cover up the sad pattern of its failing to perform properly", and appeared to be panicking.Â
Its very survival
Baha Mar Ltd. meanwhile is now fighting for its very survival after the Supreme Court of the Bahamas last week denied its application for recognition of its American Chapter 11 bankruptcy, made in a Delaware court in June.
(Baha Mar Ltd. went bankrupt) because it repeatedly made mistakes in the development of Baha Mar. Their attempts to place blame on CCA Bahamas are self-serving explanations to defect attention from their own negligence and mismanagement of the resort’s development– CCA
The Bahamian government applauded the decision because it wants to pull the matter back into the Bahamas’ courts, believing it to be the quickest way to restart the country’s biggest project, safeguard jobs and boost its fragile economy.Â
But it could spell the end of Baha Mar Ltd..
In a further blow to Baha Mar, yesterday it emerged that China Exim Bank on Monday had filed a motion in the Delaware court to have Baha Mar’s bankruptcy case dismissed.Â
CCA has already filed a similar motion, so the latest move could be interpreted as the Chinese bank, the Chinese contractor, and the Bahamian government closing ranks on the developer.
Both motions are scheduled to be heard in the Delaware court on 17 August.Â
All parties claim to want a quick resolution to the conflict and to get Baha Mar open for business. It was supposed to open in December 2014, and missed a second deadline in March this year. (See here for background.)
Sarkis Izmirlian, chairman and chief executive of embattled Baha Mar Ltd. (Baha Mar Ltd.)
No matter how CCA tries to spin it and no matter how often it tries to deflect from its lack of responsibility, it cannot cover up the sad pattern of its failing to perform properly at Baha Mar and other important projects in The Bahamas as well– Sarkis Izmirlian, Baha Mar Ltd.
Consisting of four luxury hotels with a total of 2,000 rooms, a vast casino and 200,000 square feet of convention space, the resort is expected to employ more than 5,000 people in a country where the unemployment rate is at 16%, and boost Bahamian gross domestic product by about 12%, according to its promoters.
The Bahamian government is currently paying the salaries of the resort’s staff, hired by Baha Mar Ltd. in readiness for the planned openings.
But Baha Mar Ltd. also wants to save itself, and has pursued the American route for bankruptcy because, under Chapter 11 of the US bankruptcy code, it can avoid liquidation and seek interim financing while a settlement to the multi-faceted conflict is sought.Â
In the Bahamas, where there is no statutory restructuring law, Baha Mar Ltd. would be dissolved and its assets distributed to creditors.
The developer has much to lose. The wealthy Izmirlian family, which is behind Baha Mar Ltd., has invested $900m in the resort, with the bulk of the financing, $2.5bn, coming from the China Exim Bank.
The developer was able to seek bankruptcy protection in the US because one of its constituent companies is incorporated in Delaware, while most of the other entities are Bahamian.
Baha Mar Ltd. has also commenced a claim in the English High Court in London against China State Construction Engineering Corporation (CSCEC), a giant state-owned contractor and parent of CCA, seeking "a variety of financial remedies".Â
Izmirlian’s new plan
The day after the Bahamian Supreme Court made its ruling last week against Baha Mar’s American bankruptcy bid, the developer’s chief executive, Sarkis Izmirlian wrote to the president of China Exim Bank, Liu Liange, accusing CCA of making grossly inflated claims for payment and, in effect, taking it "hostage".
Izmirlian said the project needed another $400m before the resort’s doors could open, and proposed splitting that extra investment with the Exim bank. Izmirlian’s new plan involved ejecting CCA from the project and bringing in "certain Bahamian and other contractors" – including, possibly, other Chinese contractors – to finish the work.
CCA, which has been building Baha Mar since February 2011, was quick to respond.Â Â
"Negligence and mismanagement"
On Sunday, 26 July it released a statement painting a different picture of what had happened on site. It said the developer had failed to pay the normal monthly construction progress payments of $72m for the first five months of 2015, and withheld a requested $70m which CCA said was due for outstanding construction change orders.
The Bahamas Prime Minister Perry Christie announcing his government’s winding-up petition on 16 July (Bahamas Information Services)
Baha Mar Ltd., CCA said, went bankrupt "because it repeatedly made mistakes in the development of Baha Mar. Their attempts to place blame on CCA Bahamas are self-serving explanations to defect attention from their own negligence and mismanagement of the resort’s development."
CCA went on to say that it has offered to invest an extra $100m in Baha Mar Ltd. and provide a guarantee of $175m to China Exim Bank in connection with China Exim Bank’s new $200m loan facility to Baha Mar Ltd..
CCA reminded the developer of the "firm, binding contract" establishing CCA as the construction manager and general contractor for the resort, and said its "expertise and historical oversight of the Baha Mar project is essential to successfully completing the resort as quickly as possible, and putting Bahamians back to work."Â
"Defensive and panicky"
Responding yesterday, Baha Mar Ltd. called CCA’s statement "a highly defensive and apparently panicky press release".
It said Sarkis Izmirlian’s proposal provided for a "significant equity infusion by the Izmirlian family to complete and open Baha Mar and would utilize Bahamian contractors and a Bahamian workforce to properly finish the work at Baha Mar that CCA failed to do".
"CCA should be concerned," it said. "No matter how CCA tries to spin it and no matter how often it tries to deflect from its lack of responsibility, it cannot cover up the sad pattern of its failing to perform properly at Baha Mar and other important projects in The Bahamas as well."Â
Tough talks in Beijing
Meanwhile, Bahamian Attorney General Allyson Maynard-Gibson last week led a second Bahamian government delegation to Beijing to take part in negotiations between the parties.
Bahamian newspaper Tribune242 reported that talks got off to a rocky start, with Baha Mar Ltd. representatives at first refusing to attend, and later accusing the Bahamian government of siding with CCA.
Late yesterday the Bahamian delegation boarded a flight home, with parties thought to be no closer to a resolution.
The matter may be brought to a head in two days, however. On 31 July (Friday), Baha Mar Ltd., the government, CCA and China Export-Import Bank will be back in the Bahamas Supreme Court for a hearing on a winding-up petition submitted by the government on 16 July.
At the hearing a judge will consider appointing a liquidator to take control of Baha Mar’s affairs.
Main image: Artist’s render of the completed resort (Baha Mar Ltd.)