Short end of the stick
After receiving drip-drops of information, Bahamians expect to get a full reporting on the government’s seriously risky purchase of the Grand Lucayan resort in Freeport when the House of Assembly meets today, but no one should be surprised if they still have questions after Prime Minister Dr. Hubert Minnis provides his report on the controversial decision.
From everything we have seen and heard so far, this is a very bad deal.
Taxpayers, who have been made to pay higher taxes due to what the government has termed dire fiscal circumstances, are watching as the government pumps public money down a dark, bottomless pit.
What’s in it for us? We still do not know.
The government has agreed to purchase the troubled property from Hutchison Whampoa for $65 million.
In 2015, prior to the resort suffering damage in Hurricane Matthew, it was appraised at $57 million. The government should explain this decision. What makes the hurricane damaged property more valuable now?
The Minnis administration has already spent $30 million on the purchase.
Today, it will bring a resolution to Parliament seeking approval to borrow $35 million to complete the sale. The government intends to repay the loan from Hutchison in seven tranches of $5 million every six months for three-and-a-half years, with an interest rate of four percent per year paid quarterly.
According to the resolution, the $35 million will be secured by a first demand legal mortgage over the properties.
Hutchison comes out on top.
The government will pay it over $1 million to cover the operational losses of LIghthouse Pointe, the only hotel of the three-piece hotel strip that remains open.
National Review understands that the operational costs for Lighthouse Pointe are in the neighborhood of $2 million, but its monthly business covers around 10 to 15 percent of those costs.
As such, the government will swallow the losses going forward. It hopes to cut losses by shaving the staff count.
In seeking to justify the purchase, Minnis has said it is about saving jobs.
“We must look at the broader picture,” he said to a group of Free National Movement (FNM) supporters in Grand Bahama back in July. “Those in Nassau may not understand how important the Grand Lucayan is to Grand Bahama.
“They may only look and say, ‘Well, that’s two, three hundred jobs. We lost that in Nassau. What’s the big deal?’
“But they don’t understand that the Grand Lucayan is the heart of Grand Bahama.
“If the Grand [Lucayan] fails, it will have a domino effect on the Lucaya strip with other vendors and small merchants who sell items to tourists [being impacted], and there will be no accommodation for the few guests who come into your shores.”
While the deal is supposedly about saving jobs, the government is set to pay severance to at least 200 of the 400 plus workers at Lighthouse Pointe. We understand that is likely to be as much as $6 million.
The Minnis administration has been making things up as it goes in the various statements it has made in recent weeks about Grand Lucayan.
It has gone from saying it will not renovate Grand Lucayan, to saying it was examining how much it would cost to renovate Memories, to saying it is now eyeing renovations for Breaker’s Cay. Reportedly, Breaker’s Cay renovations would come with an $8 million price tag.
It is clear that the $65 million is only the beginning of what taxpayers will have to come up with at the end of the day to get this property off Hutchison’s hands. The government clearly approached the negotiations from a position of weakness.
The prime minister said this week no investor will put a gun to the government’s head. But it appears the government has had more than a gun to its head in these negotiations.
Taxpayers in the process have been royally screwed.
According to the document to be tabled in Parliament, the government shall pay all costs and expenses, including legal fees of the lenders in connection with the negotiation, preparation or execution of the guarantee; any variation relating to the agreement and the preservation, enforcement or attempted preservation or enforcement of any of the rights of the lenders under the guarantee.
The purchase is a huge gamble for the government. The tighter the Grand Lucayan noose gets, the more trouble Minnis and his ministers would find themselves in. If too much time passes before the government finds a buyer, Bahamians, already angered by this ill-advised decision, are likely to get even angrier at their government.
It is just impossible to justify this decision in the face of all the government has been saying about the fiscal crisis over the last few months, particularly after the new budget was presented at the end of May.
If the government sells the property at a fire sale – and that appears likely based on the various pronouncements made, including by Michael Scott, who heads the board of the special purpose vehicle that is searching for a buyer – that would also be damaging for the Minnis administration.
Scott has estimated that it will take between three and six months to find a buyer. That pushes the government to a deadline of around March.
If this thing drags out, it would become an even bigger nightmare for taxpayers.
In the interim, the vendors at Port Lucaya and others who might feel some relief over the announcement of the sale, will not likely see any uptick in their business. At best, the status quo will remain. They would continue to get the crumbs from the business at Lighthouse Pointe.
The scary thing about this whole matter is that while we are hearing a figure of $65 million for the sale (not including interest), we have not yet gotten a clear picture of how deep a ditch the government is digging in respect of this purchase.
We suspect it is deeper than any of us realizes at the moment.
When his back is against the wall, as was the case after the horrendous Oban deal earlier this year, the prime minister has a tendency to seek to turn the focus on the Progressive Liberal Party (PLP).
He likes to tell us what a poor state the PLP left government finances in, how it has failed Grand Bahama.
In the situation at hand, he might spend some time telling us again what the PLP did not do for that island’s economy and how its failures led Grand Bahama voters to elect the FNM in every constituency in the last general election.
But the ‘blame the PLP’ line will not resonate.
Many Bahamians are less concerned about what the PLP did not do, and much more concerned about the bad decision making of the administration in power. They delivered their verdict on the PLP more than a year ago.
The focus today should be on what the Minnis administration has planned for Grand Bahama and how its purchase of Grand Lucayan will realistically help it achieve those goals.
What are its plans for marketing Grand Lucayan and for addressing the ongoing airlift woes?
What does it intend to do about the casino at the property?
There are other pertinent questions that must be answered. There must be full disclosure.
In a letter to Minnis yesterday, Opposition Leader Philip Brave Davis made this same point.
He asked, “In addition to the purchase price of $65 million, what are the projected costs of insurance coverage, staff benefits and severance, operation and maintenance over a month’s period, bearing in mind it would normally take six months for closing on a sale of this magnitude after a buyer has been identified. Are there any other liabilities?”
Davis wants to see the particulars of the business plan to support this transaction. We doubt there is any business plan though.
He also asks for other relevant information before debating the resolution: A signed sales agreement; copies of the recent appraisal of the resort and quantity surveyor’s report on estimated cost of repairs and restoration of the hurricane damaged properties and inventories to make them operational; particulars of the due diligence performed by the government prior to concluding the purchase agreement including profit and loss statements; particulars of hurricane related insurance claims and amount of settlement received by the vendor, which should have been part of due diligence recovery and purchase negotiations, among other documents.
It will be interesting to see if the government provides full disclosure in this matter.
It is obligated to do so.
It cannot continue to hide behind its supposed justification that it needed to act urgently to save jobs.
It will now have around 200 workers at Lighthouse Pointe and will work to find a buyer for the property. Jobs are important, but this scenario fails to justify the millions of dollars in public money being spent on this venture.
During the Baha Mar crisis under the previous administration, Minnis made transparency a major issue, demanding that the Christie administration provide all information on its actions and decisions made on behalf of the public as it related to the matter.
Now, Minnis and his government must do the same after spending public dollars on a failed asset.
We must not get distracted by the blame game that is likely to come or by the stories Minnis might tell about the pain and suffering in Grand Bahama and how New Providence residents cannot relate.
While the plight of struggling Grand Bahamians ought not be minimized, no Bahamian in New Providence or elsewhere should feel guilty for demanding answers and for demanding that their government act in a reasonable and responsible manner.
We are all taxpayers.
The expenditure of tax dollars by the government on anything and anywhere is a concern to us all, so the purchase of the Grand Lucayan with public money is not just the business of Grand Bahamians.
It is all our business.
Decisions made by Minnis and the FNM administration must be explained to all Bahamians. They must make sense.
What we have seen so far as it relates to the Grand Lucayan decision does not make a whole lot of sense.
And that is worrying on multiple levels.