The Bahamas Supreme Court has approved the appointment of provisional liquidators for the country’s bankrupt multi-hotel tourist resort Baha Mar.
The $3.5 billion project, the largest in the Caribbean, was supposed to welcome its first visitors in 2014, but the labor disputes, construction delays and cost overruns culminated in the 1,000-acre resort filing for Chapter 11 bankruptcy under United States law in Delaware in June of this year.
In court filings, the operating company Baha Mar Ltd. accused the principal contractor China Construction America of being responsible for the delays and financial mismanagement that caused the project to cost $400 million more than planned. The Chinese construction firm responded that Baha Mar Ltd.’s myriad construction change directives and incomplete design packages meant the resort could not be completed in time and on budget.
Meanwhile, the Bahamas government filed a winding up petition to place Baha Mar’s affairs under control of the Bahamian courts.
In July, Bahamas Supreme Court Justice Ian Winder denied Baha Mar Ltd’s application for recognition of the U.S. bankruptcy proceedings.
On Sept. 4 he granted the government’s application to appoint Edmund Rahming of KRyS Global and Mark Nicholas Cropper and Alastair Beveridge of AlixPartners Services UK as provisional liquidators.
Justice Winder said the respondent companies could “not continue unsupervised” and that the situation had deteriorated while the parties involved had failed to resolve their issues and complete the construction. However, the powers of the provisional liquidators are limited to preserving and maintaining the project’s existing assets until the winding up petition of Baha Mar is heard on Nov. 2.
Justice Winder struck out the Bahamian government’s original winding up petition calling it “grossly irregular” but ordered that seven new winding up petitions filed in August against various Baha Mar companies could go ahead.
For the Bahamas the project is of considerable economic importance, not least because more than 2,000 jobs are potentially affected. Tourism directly contributes almost 20 percent to the country’s gross domestic product and more than 40 percent of the economy depends on the industry. Baha Mar was designed to open with nearly 3,000 rooms in four hotels and a casino.
In August, rating agency Standard & Poor’s downgraded the Bahamas’ credit rating and placed the country’s economy on a negative outlook. S&P said Baha Mar’s bankruptcy had caused a short-term shock to the economy which would depress growth if the resort was unable to open in time for the high season in December. This, however, is seen as unlikely.
“We do not believe that the parties involved – the developer, Baha Mar Ltd.; its main lender, the Export-Import Bank of China and the contractor, China Construction America – will manage to resolve their differences in time for the resort to open for the high season beginning in December,” S&P wrote in its ratings report.
S&P lowered the foreign and local currency sovereign credit rating for the Bahamas from BBB/A-2 to BBB-/A-3 at the bottom of the agency’s “investment-grade” category.
“Not only do we see the completion of construction of this $3.5 billion mega-resort being delayed, but we also expect that bookings will take longer to fill the complex once it does open, given the reputational damage to the resort’s brand as well as the time needed to obtain new airlift capacity for the resort, among other issues,” S&P said.