Jamaican Government refuses to guarantee Harmony Cove debt
The most recent annual report for Harmonisation Limited indicates that early attempts to negotiate debt financing with China Exim Bank and delays in the Harmony Cove mega-resort project were linked to the Jamaican Government's decision not to guarantee the loan.
The first phase of Harmony Cove is expected to cost US$900 million and is planned to include at least 1,000 hotel rooms, restaurants and retail shops.
At full build-out, the resort is expected to feature 5,000 rooms with a variety of lodging options, says Harmonisation's 2012-13 annual report. The state company is chaired by banker Patrick Hylton.
While the specific loan amount sought from the Exim Bank was not mentioned in the report, it notes that two and a half years of negotiations foundered on a lack of guarantees. Negotiations then commenced with China Development Bank.
"Detailed discussions were held with the Export-Import Bank of China over the past 2.5 years with a view to securing construction financing and much time has been spent over the past year fulfilling the pre-conditions for applying to China Exim Bank," it said.
The switch to China Development Bank came "after increasing nervousness on the part of the China Exim due to the extent of their exposure with the Baha Mar project in The Bahamas in which they have invested US$2.4 billion, and a recently expressed demand for the Jamaican Government to provide some form of sovereign guarantee for the loan, which they were told is not possible".
The Harmonisation report said that China Development Bank expressed strong interest in the project, and indicated that the bank would not require a sovereign guarantee, though the loan had to be properly securitised.
The financing process was further facilitated, the report states, with the intermediation of Sinohydro Construction Corporation.
Jamaica's Finance Minister has since indicated that a deal has been struck with Sinohydro as an investor in Harmony Cove, and that a second Chinese backer is also on board. The parties have not named the second confirmed backer, though the Harmonisation report, which was released in Parliament in December, indicates that it might be the China Development Bank.
Harmonisation's report explains that the focus on Chinese sources for financing was related to "unsustainably high interest rates and a reduction in available credit from the United States and Western banking sources."
It is outlined that credit terms from Chinese banks remain among the most favourable internationally and "most likely to make the Harmony Cove project financially viable".
Other factors cited for the project's delay over time included master plan changes "to suit new developments in the Jamaican tourism market".
Harmony Cove is currently a partnership of Harmonisation Limited, with 49 per cent, and private-sector partner Tavistock Group, with 51 per cent. Shareholders in Harmonisation include Development Bank of Jamaica and National Housing Trust.
The ownership structure is expected to change under the deals with the Chinese backers, but such queries on the amount of debt and equity investments expected from the Chinese were met with a 'no comment' from the executive director of Harmonisation, Dr Lorna Simmonds.
Simmonds said the information was proprietary and further that issues surrounding the guarantee could upset ongoing negotiations with the Chinese.
Hylton referred requests for comment to Simmonds.
Harmony Cove is one of two entities in the running for designation as integrated/casino resorts.
The project's master plan preceded the legalisation of casino gaming in Jamaica, which happened in 2010.