By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was “too nice” in allowing Hutchison Whampoa to exit its Grand Lucayan debacle without paying $3.25m in Stamp duty and pocketing other payments/concessions.

The sales agreement, formally released yesterday as the Government tabled the resolution seeking Parliamentary approval to guarantee $35m in funding for the resort’s purchase, reveals that the Minnis administration agreed to pay 100 percent of the Stamp Duty associated with the resort’s sale.

Hutchison Whampoa has also been allowed to keep all the insurance proceeds it received for Hurricane Matthew-related damage at the Grand Lucayan, which are estimated to be between $80-$85m, even though the original claim submitted was for $120m. 

The documents then show that the subsidy due to the Hong Kong conglomerate for keeping Freeport’s sole mega resort property open beyond August 1, 2018, is $1.5m per month- not $1m as reported earlier this week.

This will ultimately total $2m to cover the first 11 days in September. The sales agreement refers to $1m being paid upon the deal’s signing on August 15, 2018, and a “balance of $1m” then being paid by the Government in seven separate installments of $143,000.

The sales agreement, and related annexes, give some insight into the extent of the costs and liabilities that the Government has taken on in acquiring the Grand Lucayan. For starters, it has inherited a $4.5m annual insurance policy for property damage/business interruption coverage with RoyalStar Assurance.

Given that this was taken out on June 1, 2018, and the Government’s purchase was completed on September 11, it appears likely that the latter will now become responsible for reimbursing Hutchison Whampoa for nine-and-a-half months’ worth of premium payments - equivalent to more than $3.3m.

This is because the agreement calls for the Government and Hutchison Whampoa to “prorate”, or agree to allocate to one another, their due portions of the Grand Lucayan’s taxes and expenses due before and after the completion date.

Multiple sources familiar with developments, and speaking to Tribune Business on condition of anonymity, said Hutchison Whampoa appeared to have received “everything” it wanted from the Government over the Grand Lucayan’s sale.

They suggested the deal was not negotiated by Lucayan Renewal Holdings, the Government-owned special purpose vehicle (SPV) created to own the resort, given that its Board is populated by experienced commercial transaction attorneys such as Michael Scott, Terence Gape and Carey Leonard. 

“They got everything. I don’t know who the hell negotiated with Hutchison,” one well-informed contact said yesterday. “Why is it that every deal the Government does they forgive the Stamp Duty when they don’t do it for anyone else? It’s ridiculous.

“That was all handled between the Government and Hutchison directly. We should have given Hutchison $1 in my opinion, but the Prime Minister kept saying: ‘We can’t let it close, we can’t let it close’.”

The dates in the sales agreement, and subsidy demand, indicate the Government moved swiftly to agree a deal given Hutchison Whampoa’s seeming threat to close the Grand Lucayan’s last remaining property, the 196-room Lighthouse Pointe, in August once the last Hurricane Matthew insurance payment was received.

“They should have called Hutchison in, hauled them over the coals and said this is what we will pay you,” one source added. “We went cap in hand, said we have no money and will pay you what you want. That’s what happened.

“We went to Hutchison and said: ‘Nail me to the wall’. It’s going to be a lot of money. Expenses are going to be through the roof. It’s going to look terrible.”

Much now depends on how quickly the Government can fulfill its promised objective of exiting the Grand Lucayan’s ownership quickly and, more importantly, finding a Freeport version of Sir Sol Kerzner or Sarkis Izmirlian with the capital, vision and passion to redevelop the resort and build a new tourist market from scratch. Accomplish this and any issues over the purchase will be forgotten, especially if Freeport’s - and, by extension, Grand Bahama’s - economy comes back to life.

The 10 percent Stamp Duty on real estate transactions/conveyancings is normally split 50/50 between buyer and seller. Given the $65m purchase price, the total Stamp Duty generated by the Grand Lucayan’s sale would have been $6.5m. And, if split evenly, this would have resulted in Hutchison Whampoa paying $3.25m.

However, the sales agreement only commits the Hong Kong conglomerate to paying its own legal fees. “On the completion date the purchaser [the Government] shall pay.... any Stamp Duty associated with the sale of the property (including the Stamp Duty payable on the conveyance and the mortgage) and any other taxes,” the document reads.

The Government has thus relinquished some $3.25m in much-needed taxes, although its losses are minimised because it will effectively be paying Stamp Duty to itself.

Elsewhere, the sales agreement also confirms that excluded from the Grand Lucayan’s sale are “any insurance proceeds relating to the period prior to the completion date”. This means the Hurricane Matthew payouts are gone, leaving the Government with a potential $35m repair bill for the entire property as revealed by Tribune Business last week.

The subsidy paid to Hutchison Whampoa is also greater than previously allowed for. “The vendors [Hutchison] warrant and represent to, and covenant with the purchaser, to keep the Lighthouse Pointe open until completion of the sale provided that the purchaser pays a subsidy to Hutchison Lucaya Ltd of $1.5m per month commencing from August 1, 2018, until the completion date to cover the resort’s operating losses,” the sales agreement stipulates.

This indicates that Hutchison Whampoa will walk away with a total $2m subsidy, half of which - some $1m - was paid when the Government signed the deal on August 15, 2018. The $1m balance is to be paid in seven installments of $143,000, with the timing to coincide with when the Government bond issues underwriting the purchase price financing need to be repaid.

The sales agreement adds that the $1m balance “shall immediately become due and payable” if the closing date was missed. Tribune Business was reassured that while the “legal completion” of the deal is scheduled for this Friday, the actual closing took place as planned on September 11 because this was when Lucayan Renewal Holdings officially took over operations.

Hutchison Whampoa is seemingly departing with much more than its target $65m purchase price. Besides the insurance proceeds, operating subsidy and other concessions, it will also earn 4 percent interest on the seven $5m bond tranches that the Government will issue in return for providing vendor financing to close the deal.

The Government, meanwhile, will inherit expenses such as the 75 percent employer-funded medical insurance plan for employees. It will also have to wade through multiple service, maintenance and IT contracts, some of which cost up to $84,000 per month.

That particular deal relates to security services for the Grand Lucayan. The resort has also been paying two employment agencies, Universal Employment and Total Education Centre (TEC) an average of $40,000 and $12,000 per month, respectively, for the provision of temporary workers.

Maintenance contracts peak ay $19,914 per month for landscaping work by Sanitation Services, while the Grand Lucayan is supported by 16 different IT providers earning up to $36,000 annually.