A Credit Suisse-led lending syndicate's development plans for the $4.9 billion Ginn sur mer project persuaded the Government to grant its request for a 10 percentage point Stamp Tax break, the Prime Minister revealing that some $505 million has been invested in the project to date.
In the late-night debate on the Bill to amend legislation relating to the West End development, Hubert Ingraham said the capital investment to-date, of which some $200 million had gone on infrastructure, and potential economic benefits for Grand Bahama outweighed the tax revenue relinquished by his administration.
Informing the House of Assembly that the Credit-Suisse syndicate wanted to develop the 1,476 acres it would inherit in accordance with the plans approved in the original 2005 Heads of Agreement, the Prime Minister said it had hired Canadian-based Replay Resorts to help move the project forward.
Replay was described as a specialist in large-scale, master planned projects such as Ginn sur mer, and the Prime Minister said: "The Government is advised that the Lenders have engaged in extensive preparations to continue the development of the residential component of the resort, including market research and planning.
"The lenders' [Credit Suisse syndicate] project timetable submitted to Government provides that during the first six months following the lenders becoming the absolute owners of the mortgaged lands, they propose to focus on: master planning; re-engaging the marketplace; commencing a builders' program; construction of model homes; and preparing for sales launch."
Mr Ingraham added that the Credit Suisse syndicate was "reluctant" to execute the conveyance of the 1,476 acres to it until it was assured it could obtain the benefits and investment incentives contained in earlier legislation.
Outlining the background to the new Bill, which was passed by the House of Assembly in the late Monday night hours, Mr Ingraham essentially argued that all this legislation did was to extend the period under which the project's 'special' 2 per cent Stamp Duty rate applied, enabling the Credit Suisse-headed syndicate to benefit from it.
Noting that the original Heads of Agreement, signed by the Perry Christie-led PLP administration in 2005, granted the then-developer, Bobby Ginn's Ginn Development Company, investment incentives not permissible in law, the Prime Minister said his government had to enact the 2008 'Ginn Act' to give them effect in statute.
These incentives largely related to Stamp Duty rates applicable on real estate sales at the Ginn sur mer project. Chief among them was the clause that sales of unimproved lots, worth $250,000 or more, would enjoy a 2 per cent duty rate - down from the then-10 per cent rate.
This clause, though, stated that the 2 per cent Stamp Duty rate would only last for five years from the date that the first sale worth $250,000 or more took place.
Mr Ingraham said a second amendment to the Ginn Heads of Agreement in 2008 ratified the date of this first sale as being October 12, 2006, meaning the 2 per cent Stamp Duty rate incentive was set to expire today.
As a result, the Credit Suisse-led syndicate needed an extension to that 2 per cent Stamp Duty amendment via the legislation debated on Monday night, otherwise they would have faced the prospect of paying a 12 per cent rate on the 1,476 acres - effectively an extra multi-million dollar sum.
Mr Ingraham, though, clashed with the PLP's Ryan Pinder over the scope and wording of the amendment, a development confirmed by the Elizabeth MP yesterday.
Mr Pinder told Tribune Business yesterday that the language of the amendment did not "jive" with the Prime Minister's explanation, and that it was really "expanding and broadening the scope" of the 2 per cent Stamp Duty to benefit the lending syndicate and facilitate further development at West End.
Referring to the 2 per cent Stamp Tax clause in the 2005 original Heads of Agreement, Mr Pinder said the key words were "any unimproved lot sold by the developer".
This language, he argued, did not contemplate, or make room for, granting the same concessionary tax rate to a lending syndicate or "equity of redemption" on its mortgage. It was only available to real estate purchasers at Ginn sur mer.
"My interpretation of the original legislation and the amendment is that foreclosure, and equity of redemption, do not fall within the language and intent of that project," Mr Pinder told Tribune Business.
"That's why Credit Suisse and the lenders are looking for the amendment, looking for the concession to be applicable to them."
He added: "The Prime Minister's argument was that they were just extending the time period the concession was allowed for. His argument that he put forth was that I did not understand the history of the deal, and this was merely an extension of what was already in place.
"If that was the case, we would not have to add new language to the amendment, just extend the time period of the concession. The language in the amendment does not jive with the concession.
"I think we're expanding the scope of that legislation. This, in my opinion, is a clear broadening of the concession."
Via the new legislation, Section 8 of the original 2008 Act will now read: "The Stamp Duty which is payable under the Stamp Act on a conveyance from the borrowers to the lenders of the equity of redemption in respect of any real property comprising the project shall be calculated at the rate of 2 per cent."
By applying just a 2 per cent Stamp Tax rate - instead of the normal 12 per cent - to the 1,476 acres being conveyed to the Credit Suisse syndicate, the Government is effectively giving a leading global financial institution and its fellow lenders a 10 percentage point tax break worth potentially hundreds of thousands, if not millions, of dollars.
Mr Pinder, in Monday's Tribune Business, said the incentive effectively amounted to the Government giving up some $35 million in revenue. Based on the $276 million loan note, 10 per cent amounts to $27.6 million, although with the $77.897 million defaulted interest and principal added on, that would amount to $354 million - a sum equivalent to $35.4 million.
Mr Ingraham confirmed to the House of Assembly that Ginn, the original developer, defaulted on the original $276.75 million loan facility in 2008. That loan was secured on the 1,476 acres of land at West End via a mortgage note, enabling the Credit Suisse-led syndicate to move to take possession.
To facilitate this, and the syndicate's development plans, the Government was asked to approve the assignment of the two Heads of Agreement to the lenders; allow the 2 per cent Stamp Tax concession period to be extended solely for its benefit; and allow no Stamp Duty to be paid on property conveyances/transfers from a developer to any entity 100 per cent owned by members of the Ginn sur mer resort community.
This is designed to accommodate the transfer of property beneficial to the community, such as roads, canals and amenities.
Of the $200 million infrastructure capital spending to date, Mr Ingraham said this had gone on roads, canals, the marina, beach club, utilities and golf course.
"My government has been advised that approximately $505 million has been expended by the developers as at 30 June, 2011, on the development of the Ginn project," Mr Ingraham said.
"Besides land acquisitions and various legal and marketing fees associated with the project, the amount expended includes capital works amounting to approximately $200 million."
The Credit Suisse-led syndicate is now likely to try and develop Ginn sur mer in partnership with Ginn's original financier, Lubert Adler, which retains ownership of the Old Bahama Bay resort and several hundred acres at the development's core - where the major hotels and casino are supposed to be sited.
The lending syndicate is largely taking possession of the acreage earmarked for real estate sales to overseas buyers.
It remains to be seen whether it will develop West End itself, or seek to 'flip' the project to another developer in return for cash.
There also remains the issue of the rival claimants to the Ginn sur mer project's real estate, the upcoming court dates to hear their claims and how they will react to both the new Act and the lending syndicate's plans.
Published On:Wednesday, October 12, 2011