Negotiations between the developer of a Bahamas resort, the contractor and banking officials in China aimed at a potential agreement to fund and finalize construction of the nearly complete project have not gone smoothly. While neither the developer, Baha Mar Ltd., or the contractor, a subsidiary of China Construction America (CCA), have stated that talks have halted, it doesn't look good so far.
For instance, a proposal from the developer to the Export-Import Bank of China—the development's main financier—called for removing China Construction America from the project. It should be noted that Baha Mar hired CCA after it secured project financing from the China ExIm bank.
A recent photo of the $3.5-billion Baha Mar resort project, said to be 97% complete. (Photo courtesy China Construction America)
The fiery rhetoric heated up on July 27, when CCA Bahamas issued the following excerpted statement:
1. We have never had any development responsibilities with respect to Baha Mar. Our role has been—and will continue to be—limited to that of a construction contractor. In an effort to resurrect Baha Mar, our company went above and beyond the obligations of a traditional construction contractor and made a minority equity investment of $150 million (preferred shares) in Baha Mar Ltd., which was indispensable to the funding of the project.
2. We have a firm, binding contract in place with Baha Mar Ltd. to serve as the construction manager/general contractor for the Baha Mar project. BML has failed to pay us the normal monthly construction progress payments of approximately $72 million for the first five months of 2015 and has not honored our requests for additional payments of approximately $70 million for outstanding construction change orders.
3. BML is 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 deflect attention from their own negligence and mismanagement of the resort’s development. However, despite their serial missteps and purposeful avoidance of its contractual payment obligations, we are once again offering to provide financial assistance to help save Baha Mar....
4. Completing Baha Mar is a major priority for our company.... To demonstrate our strong confidence in the project and further reinforce our continued commitment to completing Baha Mar, we have offered to invest an additional $100 million in BML and provide a guarantee of $175 million to China Exim Bank in connection with China Exim Bank’s new $200-million loan facility to BML.
5. To satisfy China Exim Bank’s clear requirements for a guarantee of the new loan facility, we have asked BML to provide a similar guarantee. Mr. (Sarkis) Izmirlian has categorically rejected our reasonable request for a counter guarantee—one which would put the Baha Mar resort project back on track for completion.
6. BML has counterproductively demanded that we reduce the value of our existing equity investment ($150 million of preferred shares) in BML, to $75 million—a 50% write-down ($75 million) of our equity investment in BML and has also requested that the interest rate on our investment in BML be reduced to zero.”
Baha Mar didn't like those words at all, apparently, and fired back shortly later on the 27th with its own statement, excerpted here:
“It is interesting that when a very viable proposal is put forward by Baha Mar Ltd. to the Export-Import Bank of China—a proposal which provides 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 issues a highly defensive and apparently panicky press release. CCA should be concerned. 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.... CCA in its release cites not a viable proposal on its part but rather a distortion of an old posture that made discussions to negotiate a consensual resolution with it as one of the parties a sham. It is why we came forward and made our very viable proposal directly to The Export-Import Bank of China. CCA failed to complete Baha Mar repeatedly on the timetables it set, its work has been called into question, it walked off the job, its failure to perform caused Baha Mar to have to seek Chapter 11 protection, and it has been uncooperative in working toward a consensual resolution."
The dueling press releases continued on the 28th, with this from the contractor:
We offered to invest an additional $100 million in Baha Mar Ltd. Additionally, in order to help satisfy China Exim Bank's requirement that 100% of its new $200-million loan facility be guaranteed, we offered to provide a financial guarantee of $175 million to China Exim Bank. In return for using the strength of our balance sheet to provide this guarantee, we requested Mr. Izmirlian provide our company with a personal counter guarantee of not less than $100 million. We offered Mr. Izmerlian the option of providing his personal guarantee in any number of ways, including in the form of pledged collateral. Our offer to help satisfy China Exim Bank's requirement of a full guarantee of the $200-million loan was rejected by Mr. Izmirlian. This is precisely the reason a deal was unable to be consummated.
The next day, Baha Mar replied:
CCA’s statement is a continued misrepresentation of the facts as they desperately try to spin their way out of their failure to perform at Baha Mar and, not surprisingly, their intransigent behavior in the discussions that have been taking place in China. Baha Mar is focused on reaching a consensual resolution to enable the resort to be successfully completed and opened as soon as possible—not on trying to explain CCA's public posturing. CCA's record of failed performance in the construction of Baha Mar speaks to that.
As ENR and other publications have noted, the Bahamian government is blocking Baha Mar's Chapter 11 bankruptcy filing, but announcing it will not recognize it. Instead, the Supreme Court is planning to appoint a provisional liquidator, thus handing control of the bankruptcy process to the Bahamian government. That appointment is scheduled for July 31.
Stay tuned.
