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Bahamian Government Will Ask Tough Questions Of Developers Partnered With Failed Lehman Brothers, Merrill Lynch and Others In Bahamas Foreign Investment Projects
Related to country: Bahamas

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Investment banks face govt questions:
By INDERIA SAUNDERS, Guardian Business Desk -
Nassau, Bahamas:



The collapse of Lehman Brothers, the forced sale of Merrill Lynch and an entire investment industry under the microscope means the Bahamian government will now ask developers partnered with those troubled players some tough questions.

"I am sure we will be making some inquiries," State Minister for Finance Zhivargo Laing told Guardian Business yesterday, responding to questions about Lehman and its position vis-a-vis the Ritz-Carlton project under development on Rose Island.

His comments come as an increasing number of questions are raised about not only that project — now delayed and the result of a partnership between resort developer Gencom and the troubled bank — but also the status of Grand Bahama's Barbary Bay project. It is backed by the Morgan Stanley investment house as well as the Port Authority's Devco. The former is set to release its financials sometime this week — a move that may cast light on the viability of that development considering Morgan's own subprime mortgage and credit problems. Both started last year.

Wall Street analysts suggest the bank won't likely follow Lehman, overwhelmed by more than $50 billion in bad subprime securities. Nonetheless, Morgan Stanley continues to grapple with significant losses with the collapse of that discredited investment vehicle and the massive writedowns it has been forced to take on in an effort to stem the bleeding.

Like its competitors, the company continues to show vulnerability to the ongoing credit crisis, reporting writedowns of $2.3 billion earlier this year, including $1.2 billion from mortgage-backed securities and $1.1 billion from bad loans. Those results have likely forced it and others to rein in on their own investment projects, unwilling to pump finances into developments with even modest levels of risk. The Barbary Beach, a mixed-use development billed as key to reinvigorating Freeport, may fall into a higher risk category, given the ongoing challenges for that city; specifically its faltering visitor arrivals numbers.

In canvassing Devco and Gencom for a comprehensive status report on what if any progress has been made and how firm is the commitment of their bank partners, Laing will likely answer the fears and concerns of a growing number of Bahamians.

"Has anyone heard, seen or know of any progress on the Barbary Bay Development on Grand Bahama near the entrance to the Grand Lucayan Waterway?" A user listed as Joe on a Web-based Grand Bahama newsgroup asked earlier this year. His online question was posted on www.geographia.com.

"Just wondering if they started any work yet or are they delayed for some reason?," he asked. Since then Deputy Director for Tourism David Johnson has confirmed delays in the project of about six months in total. That appears to have been extended given the absence of any signs of progress. Luckily for GB, the Royal Oasis appears to have escaped Lehman's collapse, with the bank selling it for $33 million to Harcourt Developments of Ireland, although little news about start dates for redevelopment have emerged.

Rose Island is a different story. Lehman Brothers, investor in the $700-million resort, still maintains a 50 percent voting share in the planned project. The uncertainty attached to its bankruptcy filing has cast the same kind of doubt over the Ritz-Carlton project set for a small key just east of Paradise Island.

Government's move to get an answer out of the local developers on how things are faring will likely do little to prevent any future blows yet to hit The Bahamas as Wall Street investors of all stripes — including their global counterparts — grow increasingly shy about putting money in resort projects. That could have a profoundly stifling effect on an economy already slowing down to a crawl, with construction workers unable to find employment.

More certain is that Laing will himself come under pressure to share the results of his fact-finding mission. Unfortunately, that intelligence may be limited by the developers' lack of information, unaware of what commitments their investment bank partners will ultimately live up to.

September 16, 2008 | 11:47 PM Comments  0 comments

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