Tangled bankruptcy further delays Bahamas resort

For more than three years, the sumptuous dream of a vast new gambling resort on the northern shore of New Providence Island in the Bahamas has brought smiles to the faces of many residents and tourism officials.  

Also smiling have been luxury travelers the world over and super-wealthy Chinese, along with other investors who foresaw a golden financial opportunity. 

But just in recent months, reality has interfered – in a big and globe-spanning way. Worldwide, smiles turned to frowns, the dream to a nightmare. 

Baha Mar, a planned $3.5 billion tropical symbol of the good life, has devolved amid a tangle of international legal controversy, financial mismanagement and broken pride. 

The current battle involves jurisdictional disputes between two national bankruptcy courts. But troubles have plagued the sprawling development just west of Nassau from the beginning, including confounding construction delays, business-model changes, huge labor disputes and financing failures.  

Since earlier this year, when Baha Mar was supposed to be greeting its first international guests, the resort has remained about 97 percent completed, according to CEO Sarkis Izmirlian. But delay after delay materialized as construction and business decisions sputtered along in fits and starts. Then the gravest blow yet struck. 

In late June, the 1,000-acre super resort filed for Chapter 11 bankruptcy under United States law in Delaware, where the only connection is that one of its many debtor companies working on the construction site is incorporated. Basically, in filings Baha Mar accuses its principal contractor, an arm of the giant China Construction America, of causing delays and mishandling finances. 

Izmirlian said in a statement that because of the Chinese contractor’s actions, “we have had to file for Chapter 11, and because of their delays, the cost of completing Baha Mar has risen by $400 million.” 

The principal lender to the development has been the Export-Import Bank of China. Both the bank and the China Construction company are owned in large part by the Chinese government, which has been seeking in recent years to expand China’s real estate holdings throughout the western world. World tourism has been a particular focus of that expansion. 

 

U.S. jurisdiction  

After the bankruptcy filing, the U.S. court quickly approved an infusion of new cash for Baha Mar, but with the provision that the Bahamas would agree to keep the case in the hands of the Delaware legal jurisdiction.  

In the Bahamas, such a cross-border legal shift seemed intolerable, an affront to the islands’ pride and autonomy.  

Hence, in the waning days of July, Bahamian Supreme Court Justice Ian Winder ruled that his court would assume control of the bankruptcy case and soon lay out terms that could assure that Baha Mar’s reorganization would proceed with new capital, new Bahamian (not Chinese) contractors and thousands of jobs for island residents. 

A whole new set of conflicts grew out of Justice Winder’s ruling, some touching on issues of national sovereignty, others upon whether the court’s position constitutes an attempt to “nationalize” the potential tourist mecca on New Providence’s north shore, according to some critics. 

These critics have pointed out a peculiar irony in the court’s position, claiming that the Bahamian effort seems to be to subsume Baha Mar as state property, under Bahamian control. But the court’s ruling also supports positions taken by the Chinese state-owned construction company and a Chinese state-owned banking enterprise.  

In a away, it looks like a capitalist business war among socialist states. It’s not, though. 

Bahamas Attorney General Allyson Maynard-Gibson’s argument against a U.S. reorganization of the resort included that ceding control to the Delaware court would have “far-reaching implications,” suggesting that the islands’ legal integrity was at stake if a foreign court had to handle its whale-sized bankruptcy morass. 

Labor issues  

While many in the Bahamas and elsewhere may have enjoyed that large dream featuring a world-class resort, others have suffered unsettled sleep during Baha Mar’s extended construction phase. 

For instance, the build-out along 3,000 feet of Atlantic Ocean beach meant construction of hundreds of thousands of square feet of deluxe convention center, casino, golf course, hotels, swimming pools, condominiums and 40 restaurants, bars and shops, as well as the renovation of more hotels. 

The likelihood of solid jobs for a good portion of Grand Bahama’s resident youths (who have been suffering more than 30 percent unemployment) had many on the islands envisioning an economic boom time before the resort even opened its doors.  

But the Chinese construction company had other plans. It flew in thousands of Asian tradesmen and laborers for those jobs. A study showed that during the most intense part of construction, 70 percent of Baha Mar’s labor was foreign nationals, including 4,200 Chinese. 

Not only did all these workers get the jobs that the Bahamas felt residents should have, the foreign temp workers – mostly in the Bahamas for just a year or two – remained largely segregated from native living, for the most part, in barracks the construction company secured for them. 

They were less like foreign visitors who might take up residence in ordinary apartments or neighborhoods and more like the cruise ship hoards who sleep and eat aboard a vessel in the harbor and spend less cash on shore. 

“It was disappointing how small those workers’ visibility was in daily life, how much they kept to themselves, but also disappointing how local people didn’t get these construction jobs,” said Harley Kendrow, a tile and flooring contractor in Nassau. “But we kept hearing that once this resort, with almost 3,000 rooms, opened up, all these long-term jobs there would go to Bahamians.” 

The trouble was, Kendrow said, management went back on its promise to have Baha Mar up and running by the fall of 2014. “They moved the opening up to spring of 2015. First it was going to be in April, then June, then July,” he said. “And now this. When will we see these jobs? This rush of new tourists? Nobody knows.” 

 

Troubles with tourism  

Hotel Chatter, a travel-industry blog widely read among hospitality executives, investors and employees, reported that after the resort missed its March opening date, it failed to alert guests with reservations or even the media that there would be no rooms in the fancy hotels. Moreover, the July 21 blog accused management of “bungling up” refunds to guests who couldn’t get accommodations there. 

“The $3.5 billion resort project has turned what should have been a modern paradise into a hotel hell,” the blog wrote. 

Fearing that Baha Mar’s fumbling might actually damage Bahama’s reputation as a great vacation and convention destination, Prime Minister Perry Christie, in a late July speech, said the government should take over the project, forcing out the developers, according to Travel Weekly, an industry trade publication. 

That’s when Christie had the attorney general seek – successfully – to wrest the resort’s bankruptcy from U.S. hands and place it under the jurisdiction of the Bahamas court. 

The many filings associated with Baha Mar’s bankruptcy make a good case for there having been years of mismanagement and financial failure. But it’s hard to tell who’s at fault. 

In defense against charges Baha Mar made, China Construction America drew up its own list of screw-ups, including these: 

The project’s principal architect was fired after construction had already begun  

Design packages were consistently late and incomplete  

Managers issued more than 1,300 construction change directives.  

But this charge in particular defines the construction giant’s take on the bankruptcy filing in the U.S.: 

“The Bahamian people are deeply invested in the future of the project. Baha Mar Ltd.’s decision to file for bankruptcy protection in the United States was, therefore, misplaced and calculated to benefit the project’s developer over the interests of the Bahamas and its people,” the Chinese company said. 

The discourse between construction executives and Baha Mar’s Izmirlian continues in like manner, with the resort’s CEO citing numerous construction delays and failures to communicate.  

“The people of The Bahamas should no longer have to endure the adverse effects of the general contractor not fulfilling assurances regarding the completion of Baha Mar’s construction, forcing in turn embarrassing delays of Baha Mar’s opening,” Izmirlian said in a published statement. 

 

Conflict towers over all  

Conflict has been the principal harvest from the 1,000 acres on New Providence Island where the gilded towers of Baha Mar rise, conflict in the form of legal actions, the public proclamations of most of the parties involved and angry responses from Bahamian citizens who feel abused by big shots with big promises. 

The main legal actions include not only the bankruptcy filling and subsequent court ruling by Justice Winder, but also a lawsuit Baha Mar filed in London against China Construction. A Beijing meeting, which continued through the second half of July, has meant more effort by Baha executives, the China Construction company and the Bahamian government to find common ground – though reports from there showed little progress. 

According to Nassau Guardian reporter Krystel Rolle-Brown, a Baha Mar statement called an offer from China Construction a “sham.” Then the builder issued its own statement saying Baha Mar is responsible for its own downfall. 

Amid all this back and forth, Prime Minister Christie said in a broadcast to Bahamians that the government has arranged for the payment of salaries to Baha Mar’s Bahamian employees – with the provision that the resort repay that money in the future. Christie called the completion of the resort “a matter of the utmost national importance” and said, “Baha Mar must open!” 

He has demanded that an impartial liquidator “expedite the resolution of the matter and prepare a plan for the restructuring of Baha Mar” so that it can open for business as soon as possible. 

The good news for Bahamians: All the seemingly chaotic conflict roiling around could begin to jell. Justice Winder’s ruling called for a hearing on the resort’s reorganization and the appointment of the liquidator who can begin sorting out Baha Mar’s financial future.  

Meanwhile, the billions of dollars’ worth of buildings and furnishings sit among their lush landscaping waiting for an answer.  

All parties agree that the sooner guests begin checking in to hotels, dining at restaurants and betting in the casino, the sooner the financial knot lying forlornly in the sand on a Bahamas beach might unravel.  

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Happier days: Bahamas Prime Minister Perry Christie, alongside Lenny Kravitz and Sarkis Izmirlian, Baha Mar chairman and CEO, in April laud the talents of Bahamian artists affiliated with The National Art Gallery of The Bahamas who painted the mural that was later affixed to the top floor of The Baha Mar resort. – Photo: Baha Mar via Bloomberg
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