WHAT MATTERS MOST – Threat to pride and industry
WHAT started as an exciting private sector-driven project now threatens to strip the country of its pride and industry as the Government is being asked to provide the financing, at a time when it simply cannot afford to.
Pride in the sense that the country was guilty of not attracting tourism brands at the top end of the market and finally in 2006 it was able to do so. Industry in the sense that, the proposed business model is to be public sector-driven which is at variance with the country’s industry at this time.
A recent report on the Four Seasons venture identified that “the project was initiated in 2006 under a business model common at the time for resort projects in which the villas were being developed and sold on an “as planned basis” first and the resulting cash flow was planned to be used to build not only the villas but the hotel and other amenities as well.” The project was affected by the worldwide financial and real estate crisis.
At the end of last year, there was a parliamentary debate that resulted in the passage of Clearwater Bay Limited (Guarantee of Loan) Act, which came into force in March.
This act speaks to the construction, under the Four Seasons brand name, of a world-class, luxury resort hotel and approximately 35 luxury residential villas and the development of assorted common areas and common rights.
Less than a year later, the project consists of a 110 room hotel with the “highest specification of any property in Barbados”, plus 14 luxury branded villas, 54 branded apartment units, 13 branded townhouses and the development of assorted common areas. In essence, the character of the project has changed, that is, downsized, given the private sector’s dwindling interest.
As it stands, the Government of Barbados guaranteed a US$60 million bridging loan, facilitated by ANSA Merchant Bank Limited of Trinidad on September 13, 2010.
The new management team and board of the Paradise Beach Limited is the subject company that would be issuing US$45 million in fresh equity which means that new investors have to find the project attractive enough to buy in.
The concern is that the National Insurance Board (NIB) is once again being asked to be the “corporate citizen” acting on behalf of the people through coercion from the government. Once there is buy-in from the NIB, the Government then seeks to impress the Inter-American Development Bank that the US$90 million credit facility is a sound investment.
In each of the sources of financing mentioned above, the Government is the critical player, thus changing completely the character of the project. This is worrying for a country that is in the throes of a fiscal crisis and whose national debt continues to move in the wrong direction.
It stated in a recent document that “the development of [the project] is strongly supported by the host Government of Barbados, which has taken the unusual step of guaranteeing the existing US$60 million debt facility for the resort”.
Even if this step is unusual, it may be argued that it was an attempt to give life to the project. But what kind of step would it be if the Government is now the primary financier of the project?
Furthermore, notwithstanding the new life, the existing equity holders are said to be willing to reduce their ownership share to ten per cent, “if a new equity investor or investors comes in and recapitalizes the project”. The issue is this: why are the existing equity holders so willing to walk away?
In today’s investment climate, the new equity investor is being promised a 12 per cent per annum accrued dividend and senior ranking over the existing equity holders. Of course, all equity holders, old and new, are entitled to the attractive dividend. So why is there the appetite to walk away?
Not too long ago, the Government identified a desire to privatize some of its operations. Now that a project has all of the ingredients for private sector participation, the same Government seems very willing to buy in, not just guarantee a loan. This is a very serious change in attitude that does not lead to paradise.
Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy.