Hong Kong-based Chow Tai Fook Enterprises, owner of Rosewood Hotel Group, has entered into negotiations to take over the beleaguered Baha Mar, the $3.5-billion project that declared bankruptcy last year.
Late last week, CTFE applied to the Government of The Bahamas for approval as a proposed investor and acquirer of the Baha Mar Resort, by way of acquisition of Perfect Luck Assets Limited, the company to which certain assets of the Baha Mar Resort have been transferred.
“CTFE is looking forward to having Baha Mar join its portfolio of world-class integrated resort development projects,” Dr. Henry Cheng, chairman of CTFE, said in a statement. CTFE has announced plans to work with the Bahamian government to open the property in phases, and to invest “millions” ahead of the official deal completion through pre-opening activities and employment, which has already commenced and will be expanded.
As part of the remobilization efforts, CTFE is already in discussions with hotel brands previously involved in the Baha Mar project, including Hyatt and SLS Hotels. CTFE also intends to re-engage its subsidiary, Rosewood Hotel Group, as the operator at Baha Mar.
Rosewood currently manages 55 hotels in 18 countries, including The Carlyle, A Rosewood Hotel (New York); Rosewood London; The Beverly Wilshire, a Four Seasons Hotel (Beverly Hills); and the Grand Hyatt (Hong Kong). Rosewood Hotel Group also operates three resorts in the Caribbean: Jumby Bay, A Rosewood Resort in Antigua, Rosewood Tucker's Point in Bermuda, and Rosewood Little Dix Bay in the British Virgin Islands (re-opening 2017).
Given the non-disclosure agreement in place, the stakeholders involved are unable to discuss specific terms of the transaction or the negotiations at this time.”
The Battle over Baha Mar
Rosewood Hotel Group has had a relationship with Baha Mar since 2011, when the project first broke ground. The 1,000-acre development was to have included a Rosewood hotel, alongside a 700-room Grand Hyatt and a 300-room SLS LUX. A fifth hotel from Morgans Hotel Group was also slated, but in an early warning sign of the troubles to come, Morgans pulled the plug on the project in April 2014 citing a management dispute. The complex was also slated to include a 1,000-room casino hotel with a 100,000-square-foot Las Vegas-style casino—offering competition to the nearby Atlantis resort.
The development faced challenges from the beginning, however, due to “dismal planning and broken trust” among three main entities: the resort's developer, Baha Mar Ltd., the resort's primary lender, China Export-Import Bank, which financed the project with a $2.5-billion loan, and the resort's builder, the China State Construction Engineering Corporation. The planning challenges were evident from the get-go: While Atlantis opened in phases over more than a decade, Baha Mar’s timeline was a narrow four years. The opening, originally scheduled for December 2014, was pushed back to March 2015, and then left as a giant question mark.
By mid-2015, construction workers were walking off the job, demanding back-pay. The developers filed for bankruptcy protection, and Rosewood petitioned to pull out of the project, citing “numerous incurable defaults' on the original contract signed with Baha Mar in 2011.” Rosewood specifically argued that the developer did not have enough money to uphold its obligations under the contract, and that it did not own the land the resort is built on.
With development dead in the water, the project became a white elephant of sorts. Deloitte and Touche were appointed as receivers for the project, and bids for acquisition were accepted earlier this year. Raymond Winder, a managing partner at Deloitte & Touche (Bahamas), told Tribune Business at the time that there was “no question” that the investor groups showing an interest in Baha Mar to-date had the financial and other capabilities needed to complete and open the development. While he would not identify the potential bidders, he said their numbers were “in the double figures,” with groups coming “from the West and the East” and representing “a good cross-section of real estate developers, hotel owners, resort and casino brands, and financially-led groups.”
One of those bids came from Sarkis Izmirlian, the CEO of Baha Mar Ltd., who reached out to the Chinese Export-Import Bank to resume his role as the principal developer and owner of the resort. Izmirlian reportedly claimed that he would provide the necessary funding not only to make sure that the bank would not be required to take a discount on its debt, but that all unsecured creditors would be paid off. This, of course, assumed that Izmirlian would be able to find an additional $1 billion in financing—which includes the estimated cost for the completion of the development, working capital for approximately six months and debt servicing costs.
Obviously, this deal did not go through, but that doesn’t mean that Izmirlian has given up the fight to get his project back. His company, BMD Holdings, issued a statement on Friday insisting that its own offer to the Chinese Export-Import Bank and the CEXIM-related entity, Perfect Luck Assets, would still top any competitor's bid.
“The press release issued today by Chow Tai Fook Enterprises clearly states it has not reached any agreement with CEXIM or Perfect Luck regarding its potential purchase of the Baha Mar asset but rather that it only has ‘entered into negotiations’ in this regard and provides no financial details,” BMD Holdings’ statement continued. “A close reading of the Chow Tai Fook Enterprises press release makes clear that there is no deal between Chow Tai Fook Enterprises and CEXIM/Perfect Luck. If indeed Chow Tai Fook Enterprises and CEXIM/Perfect Luck are in negotiations, then it can only serve the interests of the seller and The Bahamas to have a competitive process to achieve the best outcome. BMD stands fully prepared to engage with the seller to achieve such.”