The Bahamas’ white beaches and translucent blue waters give the former British colony a reputation as a haven of tranquillity. The Caribbean archipelago’s upmarket hotels, shops and casinos lure around 24,000 UK tourists, many on cruise ships, every year.
But that tranquillity has been shattered by a mammoth legal dispute between a Swiss-born billionaire heir to a peanut empire and an arm of the Chinese state.
The subject of the dispute is the near-bankruptcy of a much-hyped $3.5bn (£2.4bn) hotel resort on the island called Baha Mar – and the soured business venture is so large that it has already impaired the creditworthiness of the Bahamian government itself.
Baha Mar, which sits on the edge of the island’s Goodman’s Bay close to the capital Nassau, is the world’s biggest white elephant – an incomplete playground of pools and palm trees.
The resort boasts 2,300-plus rooms, a Jack Nicklaus signature 18-hole golf course, scores of dining chains, plus shops selling high-end brands such as Cartier, Rolex and Tiffany. But it currently sits empty after the company behind the project filed for bankrupt protection.
Despite being 97 per cent finished, the delay in opening has put the Bahamian state economy under threat and placed China’s reputation as a credible partner on international construction deals under the spotlight.
The resort was expected to create 5,000 new jobs and a $130m payroll – adding around 12 per cent to the Bahamas’ GDP. But its failure to open on time (it was scheduled to launch in December 2014) has hit the Bahamas’ soverign credit rating; Standard & Poor’s downgraded it to just one notch above junk status last year.
The legal drama pits Swiss-born businessman Sarkis Izmirlian, the brains behind Baha Mar, against the world’s third-largest construction company, China State Construction Engineering Corporation (CSCEC). The Chinese group works hand in glove with the Export-Import Bank of China (Cexim), which promised to fund the project.
The dispute has reached the UK courts because the contract signed by Baha Mar and CSCEC was done so under English law, despite the action taking place thousands of miles away.
Baha Mar filed a $192m claim for damages against CSCEC at the UK High Court for breach of contract last June. The previous day, Baha Mar filed for Chapter 11 bankruptcy protection in the US. It was dismissed but a Bahamian court put liquidators in charge of the resort. The move stalled the High Court case, although a fresh filing linked to the dispute is set to be made later this year.
Mr Izmirlian declined to comment via his spokesman.
The tale goes back to 2005 when Mr Izmirlian was a 32-year-old businessman living on the Bahamas’ Paradise Island in 2005. He was approached by the Bahamian prime minister, Perry Christie, with a proposal.
Mr Izmirlian, the son of commodity tycoon Dikran Izmirlian, who made his money cornering the global peanut market, was asked to try and revitalise the rundown area of Cable Beach, a dilapidated area of the island long overlooked in favour of other boltholes.
He bought land around Cable Beach and signed a deal with a US construction group in 2007 to develop the site. He secured financing for the project but the onset of the global financial crisis scuppered the plans.
But in March 2009 Mr Izmirlian got a break, thanks to the Chinese.
CSCEC, through its US arm CCA, agreed to come on board and construct the resort with the proviso that debt financing came from Cexim, which stumped up $2.45bn of secured credit.
CCA, led by president and chief executive Ning Yuan, is the largest division of CSCEC and has been operating in the US for 30 years. CSCEC added another $150m and Mr Izmirlian $850m.
The Chinese company was given the green light to start building in February 2011, with a completion scheduled in November 2014.
Despite the company’s size, the Baha Mar president Tom Dunlap said it had concerns about whether the Chinese could deliver such an ambitious construction project. CSCEC drafted around 5,000 migrant Chinese labourers on to the holiday island to build the resort, winning work permits for them from the Bahamian government.
“Although [CSCEC] is one of the world’s largest contractors, it had little experience in constructing single-phase resorts projects of [the] size and complexity of the [Baha Mar] project,” Mr Dunlap said in a statement filed as part of the bankruptcy proceedings.
The original completion date came and went, despite high-level summits in Beijing between the Bahamian government, Baha Mar, CCA and Cexim. A rescheduled opening date of January 2015 was also missed.
The delay left Baha Mar with costs of around $4m a month after hiring 2,000 staff to work at the resort. Without any guests to boost the group’s coffers, it was forced to declare bankruptcy.
Each side blames the other over the missed deadline. Cexim has subsequently refused to lend any more money in light of the dispute.
CSCEC alleges that it is owed $140m as part of the main construction contract, a claim denied by Baha Mar.
The Chinese have also accused Baha Mar of disrupting the construction with numerous design changes.
“Baha Mar’s decision to file for bankruptcy is the direct result of its failure to secure adequate financing, and its mismanagement,” CSCEC said as part of the bankruptcy filing.
Baha Mar now says Chapter 11 is the best way to try and get the project up and running. It hopes to negotiate a settlement to achieve this. But whatever happens next, it’s likely that the casinos and bars at Baha Mar will remain silent for some time to come.
The brains behind Baha Mar. He founded the firm and signed a deal with the Chinese to help get the resort built after hitting trouble during the financial crisis. He pumped $900m into the project, but a court ruling has rendered his investment worthless at the moment.
The president of Baha Mar. He is a former Walt Disney vice-president brought in by Mr Izmirlian to help push the project forward. Previously, he developed a $1bn holiday resort in Costa Rica.
The leader of CCA, which has been responsible for renovating the Alexander Hamilton Bridge in Brooklyn, New York. He took the role in 2010 and owns a number of properties in the United States. A Bahamian subsidiary of the group was contracted to do the work.
The top official at China State Construction Engineering Corporation. CCA is the largest unit of CSCEC, which has a number of smaller operations is a number of other countries. The business listed on the Shanghai stock exchange in 2009 and the group has strong links with the Chinese government and Export-Import Bank (Cexim).
The Bahamian prime minister since 2012. He served a term previously between 2002 and 2007, during which time he came up with the plan to develop the island’s Goodman’s Bay, which had been neglected. He has been a central figure in many of the negotiations between Baha Mar and the Chinese.
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