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S&P puts Bahamas on watch after Baha Mar bankruptcy filing

Published:Sunday | July 5, 2015 | 7:00 AM
Inside the Baha Mar casino at the incomplete mega-resort.

CMC:

The Bahamas government has been placed on watch by rating agency Standard & Poor's arising from the sudden decision of the Baha Mar group to file for bankruptcy in the United States.

Baha Mar filed for Chapter 11 bankruptcy protection in order to reorganise, after repeated delays in the opening of the US$3.5 billion integrated casino resort, which was originally scheduled to open at the end of 2014.

Standard & Poor's said it remains unclear when Baha Mar will open, or if it will be able to sustain the employment of the more than 2,000 employees already hired.

"We are placing our 'BBB' long-term and 'A-2' short-term foreign and local currency sovereign credit ratings on The Bahamas on CreditWatch with negative implications," Standard & Poor's said.

"The CreditWatch placement indicates at least a one-in-two chance we could lower our ratings on The Bahamas following our review this quarter of the potential negative impact this filing and further delays in opening may have on The Bahamas' tourism industry, in the midst of high external pressure," it added.

The credit agency indicated that it expects "a prolonged delay" of the project, which is the biggest in The Bahamas' history.

"A delay, in turn, could weaken the image of The Bahamas' tourism brand and lead to lower economic growth," said Standard & Poor's.

"The reorganisation filing comes after disputes between the resort's developer, Baha Mar Limited, its main lender, the Export-Import Bank of China; and the contractor, China Construction America. In our opinion, if the parties do not come to an agreement in the next several weeks, there are risks that not only will Baha Mar be unable to open in the near future, but that if and when it does open, it will not receive the amount of visitors it initially expected, thus tarnishing the reputation of The Bahamas' tourism industry, which represents more than 50 per cent of The Bahamas' gross domestic product."

Standard & Poor's said that this reorganisation filing comes amid growing external pressures in The Bahamas, with the country's current account deficit growing to 22 per cent of GDP in 2014, the highest level reached in more than a decade.

"The potential further delay in the opening of Baha Mar may also have negative implications on The Bahamas' external accounts, possibly limiting the boost that the tourism offering was expected to contribute to the country's exports," the ratings agency said.

In a statement, the Ministry of Finance said Standard & Poor's analysts are scheduled for a regular mission to The Bahamas later this month, at which time they were expected to update their economic and fiscal assessment.

"The Ministry of Finance welcomes the favourable review of progress made in improving the fiscal health of the Government, particularly through the gains from the introduction of the VAT and disciplined public expenditure. These reforms will continue, in order to anchor a medium-term reduction in the Government's debt burden," it said.

"As been emphasised in other official statements, the Gover-nment is committed to achieving a speedy resolution that would permit the works at Baha Mar to resume and the property to open without much further delay," the statement added.

Prime Minister Perry Christie meantime left the CARICOM meeting of leaders in Barbados, telling his colleagues he was doing so as a result of the Baha Mar situation.

"It is an interesting facet of the job we all have that we can never predict what events will unfold, what new challenge will come before us. Each time we think that the road seems clear; before you know it there is a bump in the road," Christie said, while noting that thousands of Bahamian jobs were at stake, while noting the complexity of the issue that involves several countries.

"In our case, it involves US bankruptcy laws, Chinese capital and construction expertise, and Bahamian assets. We are therefore now at a critical time which requires the superintendence of the government," Christie said.