The ghosts of Baha Mar: How a USD3.5b paradise went bust

Baha Mar Resort

Beyond the tropical waters, across palm- fringed sands and behind locked gates, looms Baha Mar – the largest and, at USD3.5 billion, priciest resort in the Caribbean.
Here, no one frolics pool-side, pina colada in hand, or hits irons on the Jack Nicklaus golf course. No slot machines jingle-jangle in the casino. The Flamingo Bar, the Brasserie des Arts and the Cartier boutique lie dark. On this bright October morning in the Bahamas, all 2,200 guest rooms are empty.
The quiet is almost spooky here on the outskirts of Nassau, where the waterscape frills of nearby Paradise Island give way to the vast ghost-resort that is Baha Mar.
Just how the place ended up like this – in a bankruptcy so colossal that it’s jeopardizing the Bahamas’s credit rating – is the biggest business story to hit this Caribbean nation for as long as anyone here can remember. It stretches far beyond the white beaches and across time zones, to none other than the State Council of China.
Turns out that even in paradise, local aspirations can collide with China’s global ambitions. Baha Mar may have been dreamed up in the vacationland of the Bahamas, but the central government in Beijing controls the development bank and construction giant that will determine its fate. And China, some Bahamians say, is playing tough as its state-run enterprises project money and influence around the world, including to this small island 180 miles off the coast of Miami.
“Their attitude is, ‘We’re the big boys in the room, we’ve got the money – so you do what we say,’” says Dionisio D’Aguilar, a prominent businessman and former Baha Mar Ltd. director.
Time is short. Bahamian officials have been counting on Baha Mar to invigorate the tourist economy. The developers claimed the resort could single-handedly generate 12 percent of the country’s gross domestic product –provided it ever opens.
Understanding the island’s predicament requires going back more than a decade to 2005 when Prime Minister Perry
Christie reached an agreement with a local businessman named Sarkis Izmirlian to help revitalize Cable Beach, the most popular beachfront destination on New Providence Island.
Izmirlian, then just 32, seemed a natural choice. He’s from a wealthy family – his father is Armenian peanut tycoon Dikran Izmirlian – and lives on nearby Lyford Cay, a billionaire enclave. Izmirlian sank nearly $900 million into Baha Mar and recruited marquee-name partners like a Caesars Resort hotel.
Then the 2008 financial crisis hit, and would-be partners balked. When China State Construction Engineering Corp., the world’s second-largest contractor, approached Izmirlian about stepping in, he said yes. The company directed him to Export-
Import Bank of China, or Exim, which promotes trade and investment under the direction of Beijing.
Seeing a way into U.S. markets, China State Construction promptly invested $150 million. Exim kicked in $2.45 billion in construction loans – with the proviso that Izmirlian could never fire the Chinese builder, no matter what, and that workers from China would do the job. Flush with Chinese money, Izmirlian declared four Baha Mar hotels would open by 2014.
All this was documented in court filings, and supported by interviews with Christie and other Bahamians. The Chinese and Izmirlian declined interview requests.
Endless haggling complicated by language barriers ensued – about payments, invoices, workmanship, on and on. Deadlines were set and promptly broken. Emails flew back and forth to Beijing.
In May 2014, Izmirlian appealed to an independent mediation service based in Washington, D.C., but the troubles multiplied. Pipes burst when inspectors tested the fire sprinklers and faulty balcony railings had to be reinforced, people with knowledge of the construction said. When Izmirlian complained, China delayed its money, one said.
As construction dragged on, Izmirlian and Christie flew to Beijing. There, officials assured them the resort would be ready to open on March 27. Upon his return, the developer hired 2,070 hotel workers, ran a global ad campaign and stocked the casino with $4.5 million in cash.
For Izmirlian the affair was becoming the ultimate contractor nightmare. He was spending an additional $4 million a month to pay staff for a hotel with no guests. Concerned that China State Construction might gain a tactical advantage by filing first, he secretly planned to have Baha Mar declare bankruptcy in the U.S. rather than the Bahamas, whose laws would make liquidation all but inevitable.
He didn’t even alert the prime minister for fear he would tip off the Chinese, says D’Aguilar, the former resort director.
Baha Mar Ltd. filed for bankruptcy in Delaware on June 29 – and all hell broke loose. China State Construction accused Izmirlian of disrupting the project with endless design changes.
“Baha Mar Ltd.’s decision to file for bankruptcy is the direct result of its failure to secure adequate financing and its mismanagement,” the Chinese company told the court.
Christie’s foreign minister, Fred Mitchell, spoke out in an August speech celebrating the end of slavery on the island, saying “the attempt to keep us bondsmen and slaves does not and has not stopped.”
At the Emancipation Day Service, Mitchell continued, saying: “It is therefore no surprise then that an investor – because he has the word billionaire behind his name – would think, would have the temerity to believe, that he can challenge the leader of our country.”
As the dispute dragged into September, a Delaware judge dismissed the U.S. bankruptcy and a Bahamian judge put provisional liquidators in charge, rendering Izmirlian’s $900 million investment nearly worthless. In October, they hosted negotiations at a nearby hotel. It was a bizarre scene, with Bahamian dancers gyrating in hot pants in the lobby as Chinese men in black suits hunched over laptops.
In November, Izmirlian said he was still negotiating with Exim and hoped to remain involved. Failing that, he’s also sued in the U.K., claiming about $192 million in damages for a breach of contract, a figure that could grow as another winter tourist season passes with the resort still in limbo.
How it’ll end is anyone’s guess. Fernando Menendez, a senior fellow at Washington think tank Center for a Secure Free Society, says the episode says less about the Bahamas or Izmirlian than it does about China and its state-
owned enterprises.
China Exim wielded billions to guarantee work for one of its biggest customers, China State Construction. How and when that work got done didn’t really matter: Exim made sure the state-run company could never be fired.
“State-owned enterprises don’t function as competitive entities,” Menendez says. “They’re protected from failure.”
Christie says he’s still optimistic the resort can open. In December, Exim said a number of potential investors had expressed interest. These include Guo Guangchang, chairman of a non-state Chinese conglomerate called Fosun Group, people familiar with the situation say. Fosun already owns stakes in Club Mediterranee SA and Cirque Du Soleil Group.
Back in Nassau, people worry that even with new investors, the promised economic boost will take time. It could be 2018 before Baha Mar makes a meaningful contribution to the economy, according to Standard & Poor’s, which lowered its Bahamas rating to BBB- and warned it could be heading for junk.
For now, Baha Mar faces mold and corrosion as it bakes in the tropical heat. Its pink and cream towers are ringed by a chain-
link fence and blue tarps cover unused supplies. At night, lights pop on in several rooms – a move the Bahamians hope will ward of the desolate air of this Caribbean ghost.
By John Lippert and Dawn McCarty, Bloomberg