Last updated: 10:48 AM ET, Thu July 30 2015

No Cease-Fire in Baha Mar War of Words

Hotel & Resort | Brian Major | July 28, 2015

No Cease-Fire in Baha Mar War of Words

Photo courtesy of Baha Mar

Proposals, counter-proposals and accusations flew Monday as developer Baha Mar Ltd., China Construction America (CCA) and the Export-Import Bank of China (Exim Bank) launched new negotiations in Beijing in another attempt to broker an agreement that would open the stalled $3.5 billion Bahamian mega-resort.

In a letter to Exim Bank president Liu Liange late last week, Baha Mar chief executive Sarkis Izmirlian proposed a deal that would sever CCA from the project and substitute Bahamian contractors. Izmirlian asked Exim Bank for a 50-50 agreement that would also provide $400 million to finish construction.

CCA’s “backtracking” on recently negotiated terms to resolve the impasse left Baha Mar no closer to reaching an agreement with CCA, Izmirlian said, despite “vigorous” efforts to reach a consensus. “Baha Mar does not believe that a solution other than a negotiated solution between (Baha Mar) and the bank is in the bank’s best short- or long-term interest,” his letter reads.

Meanwhile CCA Bahamas, the CCA affiliate in charge of Baha Mar’s construction, proposed its own multi-million dollar deal to save the troubled project. The CCA proposal, of course, retains the construction company’s role in the development.

“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 and provide a guarantee of $175 million to Exim Bank,” which would provide a $200 million loan to Baha Mar under the agreement, CCA officials said.

CCA also issued their own sharp terms to describe their development partner and its attempt to cut the firm out of the deal.

“We have a firm, binding contract in place with Baha Mar to serve as the construction manager/general contractor,” says CCA’s statement. “This is a condition of the $2.5 billion bond issued by Exim Bank to finance the construction of the project and the terms cannot be voided by any parties.

“BML is bankrupt because it repeatedly made mistakes in the development of Baha Mar,” the statement continues. “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.”

CCA officials say Baha Mar owes the firm $72 million for missed “monthly construction progress payments” in the first five months of 2015. Baha Mar also has not honored CCA’s “requests for additional payments of approximately $70 million for outstanding construction change orders,” company officials said.

Only three days remain for Baha Mar and its Chinese partners to reach a negotiated settlement before the Bahamas government would remove Izmirlian and Baha Mar Ltd. from the project under the terms of the Bahamas government’s winding-up petition. The Bahamas Supreme Court would appoint a provisional liquidator to direct the project’s completion under terms of the petition.

Izmirlian said Baha Mar’s move to ax CCA followed the construction firm’s attempts to change terms agreed to earlier in negotiations, including an October 31 deadline for 100 percent completion of the resort.

“CCA has now changed agreement terms to a temporary certificate of occupancy with ‘substantially all’ of the resort complete,” said Izmirlian’s letter.

Nevertheless Izmirlian seems to realize the difficulty of his position, as both CCA and Exim Bank are owned by China’s government. He said he was not asking the lender to take sides in its dispute with CCA but asking the bank to “allow both sides to enforce their contractual rights.”

Izmirlian added, “Although we have been unable, despite significant effort on our part, to find a solution with CCA, we can find a solution amongst the two of us. Why allow the contractor to continue to hold Baha Mar hostage?”

CCA in turn asserts Baha Mar is asking the firm to take a significant loss on its investment. “Baha Mar has counterproductively demanded we reduce the value of our existing equity investment ($150 million of preferred shares) in Baha Mar to $75 million, a 50 percent write-down” and also asked the interest rate on CCA’s investment “be reduced to zero.

“While Baha Mar continues to be unwilling to reach a mutually beneficial agreement, our commitment to supporting the Bahamian government and the people of the Bahamas has not waned,” said CCA. “If a resolution is reached swiftly, CCA Bahamas believes Baha Mar can be finished in time for the winter high season.”

For their part, Bahamas government officials attending the Beijing talks remained hopeful. “Should Baha Mar and China Construction agree, they will negotiate with Exim Bank the financial terms required to support their agreement …leading to the resumption, completion and opening of the Baha Mar development” they said in a statement. “This is our sole intention.” 

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