By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamians have fallen further down the Baha Mar creditors queue as a result of the $50 million loan extended to the development’s receivers to cover costs associated with preserving and maintaining the resort assets.

Tribune Business can reveal that not only is the $50 million injected by China Harbour Engineering Company (CHEC) a loan that must be repaid, but is also a “preferential” financing that now ranks ahead of all other creditors.

Sources familiar with developments said CHEC’s $50 million was senior to all other security and charges over Baha Mar’s real assets, including the $2.45 billion debenture possessed by the project’s main financier, the China Export-Import Bank.

CHEC, which is constructing North Abaco’s new $39 million shipping port, is said to be one of the investors exploring Baha Mar’s purchase from the bank-appointed receivers, Deloitte & Touche.

However, the effect of its $50 million loan is to drop all Baha Mar’s Bahamian creditors - contractors, the 2,000 laid-off staff and other local suppliers - further down the creditors’ queue, reducing an already-remote chance they will receive something, let alone 100 per cent, of what is due to them.

Prime Minister Perry Christie has already promised that the 120 Bahamian construction companies, which are owed a collective $74.3 million, will be made whole, but the nature of the CHEC financing raises fresh questions over whether this will actually happen.

“The $50 million was a preferential loan,” one source intimately familiar with the Baha Mar situation confirmed. “It takes priority over even the China Export-Import Bank.

Another contact close to developments, speaking on condition of anonymity because they were not authorised to speak to the media, added: “It’s a loan. The receivers have to find a way to repay it. It’s not free money.”

The CHEC funding, then, will act as a further encumbrance upon Baha Mar’s real estate assets, adding to its debt load and potentially complicating efforts to find a purchaser other than the Chinese infrastructure contractor.

It is unclear why CHEC, rather than the China Export-Import Bank, is providing the interim financing necessary for the Baha Mar receivers to perform their duties.

It is usually incumbent on parties placing companies into receivership to finance these activities if operational cash flows are insufficient to cover their costs, meaning that Deloitte & Touche should have got the monies from China Export-Import Bank - not CHEC.

“It should have been the bank, but it isn’t,” one source said.

This situation can be interpreted in a number of ways, one being that the China Export-Import Bank has no interest other than selling Baha Mar to a buyer who can ‘make it whole’, and has no interest in putting another cent into the development.

It was also suggested that because the Deloitte & Touche receivers needed immediate financing, something that the bank’s “tedious” approvals process would not have allowed, the decision was made in Beijing for the funds to come instead from CHEC.

Tribune Business sources close to Baha Mar said the CHEC monies were intended as “short-term” financing to cover the receivers’ costs for up to six months.

However, this newspaper was given indications that due to Baha Mar’s scale and complexity, the $50 million would not last that long.

CHEC was described as “one of the prospective investors” eyeing Baha Mar’s purchase, and was talking both to the Bahamian Government and its fellow Chinese state-owned institution, the China Export-Import Bank.

“I know that they are one of the prospective investor partners,” one source said of CHEC. “There are a number of them looking. Most of them are Chinese.

“A Western firm would want to see the bank take a haircut and purchase it [Baha Mar] for a much lower market value than what the bank invested.

“Fortunately or unfortunately, it’s all Chinese. Western groups, based on what’s needed to complete it, will not value it at what the bank wants to get.”

Another source suggested that it was “all in the family” for the Chinese when it came to Baha Mar, and that CHEC’s $50 million loan was intended to place the project in a ‘holding pattern’ and keep other potential, non-Chinese investors at bay.

“There are a number of potential purchasers,” another source confirmed. “The real issue is whether they’re going to give the bank what it’s looking for. Western groups are looking for a deeper discount.”

The China Export-Import Bank thus seems to have determined it wants to exit Baha Mar now rather than spend a further $600 million on the construction alone to complete and open it.

However, it seems insistent that it be made whole and recover 100 per cent of what it has loaned to the project - a condition that will be problematic for the Christie administration.

The Government’s interests lie in a quick sale, followed by a completion and opening of Baha Mar, with 5,000 Bahamians employed and local creditors made whole - especially given that a general election is now around 17 months away.

The China Export-Import Bank’s desire to sell immediately and recover 100 per cent of its outlay does not fit with the Government’s objectives, as such a sale will likely take longer to structure and negotiate, and also narrows the purchaser field to Chinese buyers.

“The Government is pressing the case. They want a quick deal,” one source said.

Another added: “The Government will not want to see a shifting of the decks and parlaying of the process. They want to see investors to the table with a long-term interest in the Bahamas.

“The Chinese have a different view on these things. The Western world likes to move quickly based on asset valuations, how much it will cost and how long it will take to complete it.

“No matter what Western group comes forward, the bank wants to recover 100 per cent of what it is owed. So it’s going to be limited to Chinese groups moving forward.”