China Construction America Ordered to Pay USD 1.6bn Over Conflict of Political Interests

• 15 November 2024
• Construction Focus
• 1240 Views

A New York court has ordered China Construction America Inc. (CCA), a subsidiary of Chinese state-owned China State Construction Engineering, to pay USD 1.6 billion to BML Properties, the original owner of the Baha Mar casino resort in the Bahamas after the contractor was found to have committed “many acts of fraud” during its takeover of the project. The ruling marks a significant legal victory for BML’s founder, Sarkis Izmirlian, and follows a lawsuit filed in 2017. The verdict also includes repayment of BML’s USD 845 million investment plus accrued interest since May 2014, with CCA vowing to appeal the decision, according to the South China Morning Post on 24 October 2024.

The Baha Mar project, which initially aimed to become a world-class luxury destination, faced a turbulent history beginning with Izmirlian’s pursuit of financing during the 2008 global financial crisis. Securing a USD 2.45 billion loan from China’s Exim Bank, he accepted terms that required CCA to serve as the general contractor with the capacity to import up to 8,000 Chinese workers. CCA also contributed USD 150 million alongside BML Properties’ USD 845 million investment, setting the stage for an ambitious venture in the Caribbean.

Originally scheduled to open in December 2014, the resort suffered multiple delays and setbacks, eventually filing for bankruptcy in June 2015, with Baha Mar reportedly 97% complete. The filing cited CCA’s alleged deliberate poor workmanship, and subsequent reports surfaced of CCA employees smuggling documents that admitted to substandard construction. Despite Izmirlian’s attempts to maintain control and bring in a different contractor, the Bahamian government – deeming the resort a national priority – facilitated a transfer of ownership to a liquidator, halting construction for over a year.

Chow Tai Fook’s Strategic Acquisition

After an extended pause, the Bahamian government brokered a deal to resume construction while seeking a new buyer. Hong Kong-based Chow Tai Fook Enterprises, renowned for its jewellery business and controlled by the Cheng family, ultimately emerged as the purchaser, reportedly acquiring the project at a steep discount. Chow Tai Fook now operates Baha Mar, which opened in April 2017, featuring the Caribbean’s largest casino, 1,800 hotel rooms across three hotels, a spa, a convention center, luxury retail, and a Jack Nicklaus-designed golf course.

Strategic Implications for Chow Tai Fook and China

Industry experts viewed Chow Tai Fook’s acquisition as mutually beneficial for the company and the Chinese government, aligning with broader strategies of geographic and business diversification. Michael Zhu, then Vice President at The Innovation Group, highlighted that acquiring Baha Mar represented “a win-win for Chow Tai Fook and the Chinese government,” as it expanded their global presence.

The decision to settle the USD 1.6 billion payment against China Construction America (CCA) adds a significant chapter to the ongoing Baha Mar saga, underscoring the intricate interplay of global finance, construction, and legal accountability within the realm of real estate development. This high-stakes case is marked not just by its financial scale but by the geopolitical forces at play, with a backdrop of conflicting interests between two superpowers: the United States and China. While U.S. courts have mandated that subsidiaries cover substantial costs, the final outcome appears to favor the beneficiaries of the resort’s massive development. Ultimately, a Chinese company, backed by its government, stands to gain, leveraging this outcome to expand its influence in the Caribbean.

• Business and Market
• Policy and Strategy
• Road and Infrastructure
• china real estate