The local subsidiary of Chinese state-owned developer China State Construction Engineering has been ordered to pay US$1.6 billion to the original owner of Bahamas casino resort Baha Mar after being found to have committed “many acts of fraud” in assuming control of the property.
Baha Mar is operated by Hong Kong jewelry giant Chow Tai Fook Enterprises, which also holds interests in Australia’s Star Entertainment Group and Vietnam’s Hoiana. Chow Tai Fook also has links to Macau concessionaire SJM via chairman Henry Cheng’s 10% stake in STDM.
According to a report by Bloomberg, the decision by a New York court – which relates to a case filed by Baha Mar’s original developer Sarkis Izmirlian against China State Construction Engineering subsidiary China Construction America Inc (CCA) in 2017 – sees CCA ordered to pay US$1.6 billion to Izmirlian’s BML Properties.
The amount includes BML Properties’ entire US$845 million investment plus interest dating back to May 2014. CCA has promised to appeal the ruling.
Opened in April 2017, Baha Mar boasts the Caribbean’s largest casino, 1,800 hotel rooms across three hotels, a spa, convention center, retail and a Jack Nicklaus-designed golf course.
The case stems from Izmirlian’s decision to seek funding for Baha Mar – first envisioned two decades ago – via China during the midst of the global financial crisis in 2008. He found success to the tune of US$2.45 billion through China’s Exim Bank, however the bank also stipulated that CCA must be general contractor and with the right to import up to 8,000 Chinese construction workers, providing in the process a significant boost to China’s domestic economy. On top of Exim Bank’s contribution, CCA chipped in US$150 million and BML Properties US$845 million.
The resort had initially been slated to open in December 2014, but after missing the opening and a series of later dates throughout 2015, BML filed for bankruptcy in June 2015 while blaming CCA for allegedly deliberate poor craftmanship. Baha Mar was said to be 97% complete at that point.
It was also reported at the time that CCA employees had been found smuggling computers and documents – some seeming to acknowledge substandard work – from project offices.
While Izmirlian had hoped to retain control and bring in a different contractor, the Bahamian government – which saw Baha Mar as a key national project – had other ideas and the property was instead handed over to a liquidator. Construction ultimately halted for more than a year before the government announced it had reached a deal with CCA to resume construction while it looked for a buyer.
Chow Tai Fook, whose controlling Cheng family has long held close ties with Beijing, was ultimately revealed to be that buyer at an undisclosed price although rumors circulating at the time suggested the acquisition came at a massive discount.
Michael Zhu, then Vice President of industry consultancy The Innovation Group, told IAG at the time that taking control of Baha Mar was “a win-win for Chow Tai Fook and the Chinese government … diversification is part of their strategy, geographically and business-wise.”
This US$1.6 billion decision against CCA saw the judge find the contractor had “committed fraud beyond any doubt” by forcing the collapse of the project in order to enrich itself and ultimately ensure Chinese interests claimed control.
Bloomberg quoted BML’s legal representatives as saying, “This is a major vindication for Mr Izmirlian. It’s been a long time coming.”
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