How China Rescued -- Then Ruined -- The [not just the Bahamas] but the Caribbean's Largest Resort Project -- The Baha Mar a 1,000-acre resort complex on the island of New Providence in the Bahamas, close to its capital Nassau.
by Muhammad Cohen for Forbes
At the early 2011 groundbreaking for the yet-to-open largest resort in the Caribbean, Baha Mar Resorts CEO Sarkis
Izmirlian stands between state-owned Export-Import Bank of China President Li Ruogu, left, and Bahama's Deputy
Prime Minister Brent Symonette, before the two governments squeezed him out. (Photo Credit: AP Photo/Tim Aylen)
As an American living overseas, I often hear gripes about U.S. influence in the world. Over the years I’ve learned that the best response is to acknowledge that U.S. stewardship of the post-World War II global order has been far from perfect. But if you don’t like it, just wait until China takes charge.
For a preview, look at Baha Mar, the $3.5 billion resort project in the Bahamas, that’s been rescued and ruined by Chinese state controlled entities, seen its founder shoved aside to placate China and now is about to the placed in the safe hands of Hong Kong’s billionaire Cheng family, longtime friends of mainland authorities and investors in Macau gaming. The biggest mystery remaining is whether the Cheng’s Chow Tai Fook Enterprises is doing a bigger favor for Beijing or Beijing is doing a bigger favor for Chow Tai Fook.
Even though it’s 97% complete, Baha Mar, with 2,200 guest rooms, a Jack Nicklaus-designed golf course and more, remains closed. The Caribbean’s largest ever resort project is a potential game changer for the Bahamas, which has seen tourist arrivals decline by nearly 20% to 1.3 million over the past decade, projected to contribute more than $1 billion to the national economy annually, boosting GDP by more than 10%.
Baha Mar’s history begins with Bahamas Prime Minister Perry Christie approaching commodities billionaire heir and Bahamas resident Sarkis Izmirlian to develop the resort. But project financing dissolved amid the credit meltdown of 2008. Enter China, with its Export-Import Bank giving a $2.5 billion loan, state-owned China State Construction Engineering, as primary contractor through its China Construction America subsidiary, kicking in $150 million and Izmirlian providing $850 million. The loan agreement included provisions that CCA could import Chinese construction workers, despite the Bahamas’ double-digit unemployment, and that Baha Mar could not fire the Chinese contractor, which had never built a resort on Baha Mar’s scale. Baha Mar complained about shoddy construction work and missed deadlines.
Three scheduled resort openings came and went between December 2014 and March 2015, with Baha Mar carrying 2,000 staff on a $4 million monthly payroll. Baha Mar filed for bankruptcy in U.S. court in June 2016, embarrassing leadership in Beijing and Nassau. The Bahamas asserted jurisdiction, and, with Chinese state enterprises reportedly dictating terms, not only as the largest investors in Baha Mar, but as proxies for all Chinese investment in the Bahamas, including Club Med, downtown Nassau’s redevelopment master plan and port operations. China Harbor Engineering Company, another state-owned company, lent $50 million to maintain the resort in receivership, with Izmirlian’s team cut out of negotiations and local contractors claiming they’re owed $74 million.
Prime Minister Christie tried for more than a year to broker a deal to complete and open the resort and to save face for his government and Beijing. After months of false alarms, a buyer emerged: Chow Tai Fook Enterprises, controlled by the heirs of billionaire Cheng Yu-tung, who passed away in September after years in a coma. Cheng family enterprises became the largest foreign investors in the mainland though property deals in the wake of the 1989 Tiananmen Square massacre, when even many Hong Kong companies ostracized China. CTFE, a long time 10% stakeholder in Stanley Ho’s casino vehicle Sociedade de Tourismo e Diversoes de Macau, was initially associated with Baha Mar through its Rosewood luxury hotel chain, and that brand will be part of the revival. However CTFE cites a non-disclosure agreement to withhold further details. Pending government approval of the deal, Christie says the firm will invest $200 million for a phased opening beginning in the second quarter of 2017 with 1,500 people to be hired as early as January.
Opponents are crying foul, saying Christie has timed hiring to coincide with upcoming elections. They’re also focusing on CTFE’s links to Macau junkets. And speaking of junkets, a government team has flown to Macau to assess CTFE’s casino operations, something that doesn’t exist. The Chengs have been silent investors in Macau, with no role in day-to-day activities. Henry Cheng, who succeeded his father as chairman of publicly listed Chow Tai Fook Jewellery and New World Development and affiliates, also took his father’s seat of the board of SJM Holdings, STDM’s publicly listed casino affiliate, but has no executive responsibilities there.
Looking for Cheng family underworld connections suggests that gaming regulators in Australia, as well as Vietnam, haven’t done their jobs, since they’ve approved CTFE as a partner in the $3 billion Queen’s Wharf Brisbane redevelopment and lead developer in the putative $4 billion Hoi An South Integrated Resort. Opposition to the Baha Mar deal shouldn’t focus on Macau organized crime but mainland China’s organized capitalism. Chinese state companies wrecked Baha Mar, and, with the help of the Bahama government, Chinese interests stand to benefit from the ensuing debacle.
Baha Mar demonstrates there’s no free lunch, especially when you choose Chinese.
Bahamas' Beleaguered Baha Mar Casino Resort To Open With Chinese Characteristics
by Muhammad Cohen for Forbes
More than a decade in the making, $3.5 billion Baha Mar is due to open as a Caribbean resort with
Chinese characteristics. (Photo credit: Grand Hyatt Baha Mar) GRAND HYATT BAHA MAR
After many stumbles during its decade-plus gestation, the Bahamas’ largest hospitality project is due to open Spring 2017. US$3.5 billion Baha Mar emerges as a Caribbean resort with Chinese characteristics and proof of Beijing’s influence in the island nation within 100 kilometers (60 miles) offshore from the U.S. Hong Kong’s Chow Tai Fook Enterprises, the private vehicle of late multi-billionaire Cheng Yu-ung’s family, owns the integrated resort, while China’s state-owned Export-Import Bank and China State Construction Engineering hold the mortgage. Original owner Sarkis Izmirlian gambled and lost his dream project, putative partners including Harrah’s (now Caesars) Entertainment, former Las Vegas Sands President and COO William Weidner’s Global Gaming Asset Management and Starwood Hotels, plus the $850 million Izmirlian invested in Baha Mar. Interviews with project participants and hospitality experts indicate miscalculations on all sides led to the delays and disappointments that have plagued Baha Mar.
Originally conceived to open in one phase, Baha Mar will debut with its casino and a fraction of its 2,200 rooms, managed by Hyatt, SLS and Chow Tai Fook’s Rosewood brand. The project was reportedly 97% complete when work stopped after three missed openings in six months, the last in May 2015. In a bankruptcy filing that June, Izmirlian’s group contended that poor work by China Construction America, China State Construction Engineering’s U.S. affiliate, was behind the delay. Baha Mar was assigned the Chinese builder as its designated general contractor (with the right to bring in thousands of Chinese construction workers) as part of its $2.6 billion financing deal with ExIm Bank, saving the project after global credit markets dried up in the recession that began with the September 2008 collapse of Lehman Brothers.
Chinese government support here is in sharp contrast to the lack of help for Imperial Pacific International casino resort project on U.S. soil in Saipan, that currently needs a fraction of the money that’s been lent for Baha Mar. It indicates changing times and priorities for Beijing.
ExImp Bank’s loan finally got the project underway after five years of false starts. But experts says the apparent lack of a suitable dispute resolution mechanism between the owner and the contractor set the stage of problems. The Bahamas government, which backed the project from the outset as vital to the national interest and forecasts it will add more than 10% to its GDP and provide 7,000 jobs, intervened to help resolve issues. But Izmirlian’s surprise bankruptcy forced Bahamas Prime Minister Perry Christie to choose between the Swiss-born heir to a commodities fortune and China. The government chose China, given the level of Chinese investment in the Bahamas, including a redevelopment initiative for capital city Nassau, and the potential for more.
After the project lay idle for a year, PM Christie brokered a deal for China Construction to resume work that observers say gave Chinese interests de facto control over the project that Beijing saw as a showpiece for its business and geopolitical interests in the region. Chow Tai Fook came to the project as a white knight, likely got a discount on the price and won’t close the deal until construction is complete, expected by the end of the year. A long time investor in Stanley Ho’s Macau gaming empire among its eponymous jewelry business and New World conglomerate, Chow Tai Fook is taking its first stab at operating a casino resort. The opening came just ahead of national elections due in May and was expected to give the ruling party a boost, if all was to go well - it didn't. Mr. Perry Christie lost the election to Dr. Hubert Alexander Minnis.
Controversy and delays have overshadowed Baha Mar’s potential as a tourism game changer for the Bahamas. Conceived in the era of mega-resorts a decade ago as “Las Vegas on the beach,” according to its founding President Robert Heller, Baha Mar faces serious competition on its Nassau flank from family oriented integrated resort Atlantis and from expanded gaming opportunities up and down the US east coast and across Florida, its primary feeder markets. Expect Chow Tai Fook and its mainland allies to tempt Chinese travelers to sample the Caribbean beat.
Hong Kong On Air author Muhammad Cohen is Editor At Large for Inside Asian Gaming. Follow him on Twitter @Muhammad Cohen.