Background

In this hypothetical scenario, you are the Chief Executive Officer (CEO), of a company, Island Ports Limited. Your business, is a global business, with shipping ports in all of the major English speaking Caribbean countries. On January 7, 2020, you signed a Heads of Agreement with the Government of The Bahamas to invest $120 million during the Phase I to develop a cruise port on the island of New Providence. As you can appreciate, the signing and the commitment of your shareholders to this project, preceded any information available to your company and its shareholders with respect to the potential impact of the coronavirus, i.e. COVID-19.

Concessions granted to Island Ports (hypothetical scenario)

The following were the concessions granted to Island Ports during the signing of the Heads of Agreement:

i.A twenty (20) year tax holidays in relation to the payment of any real property tax for this project. Island Ports, Chief Financial Officer, has estimated that the tax forgiveness by the Government of The Bahamas is equivalent to $1.01 million annually.

ii.A ten (10) year tax waiver on the payment of Value Added Tax on all goods imported for the construction of the ports, goods sold to the public, once the port is operational and all related materials used within the confines of the port. The CFO estimates that the gain to Island Ports as a result of this tax concession, is conservatively estimated at $5.4 million annually.

iii.A ten (10) year waiver of import duties on all inputs needed in the construction of the port. The CFO has estimated that this import tax waiver amounts to $10 million annually during the first three (3) years of the project and on average $2 million annually for the ensuing seven (7) years.

iv.A land grant of ten (10) acres for the construction of the port. This is land that is owned by the Government of The Bahamas and will be given to Island Ports for a nominal price of $10. The land has a market value of $15.5 million.

Commitments from Island Ports to the Government and People of The Bahamas

In light of the concessions granted to Island Ports as listed above, the company has committed the following to the Government and people of The Bahamas:

i.Five hundred (500) direct jobs during the Phase I construction of the port. During the initial signing of the Heads of Agreement, in January, 2020, there was a commitment for the construction to start September, 2021, with the first phase completed May, 2022.

ii.Phase I of the project was estimated to cost $60 million. The entire sum, i.e. $60 million needed for the construction of this phase, will be sourced from external investors. These investors had pledged the financing prior to the COVID-19 pandemic.

iii.Some local ownership by offering shares to the general public. The public is expected to have a 40% stake in the project. It is estimated that this 40% stake will provide a net benefit to the domestic economy of $40 million over the next 5-7 years.

iv.By way of the added economic activity created as a result of Island Ports, the government is expected to get an added $15 million in revenues in head tax revenues from cruise passengers to the new port. This additional $15 million in revenues is predicated on the port being operational August 1, 2022, which means that construction must begin September, 2021.

The following is the outlook for The Bahamas, based on baseline data (as at 2019) taken from the Central Bank Quarterly Digest at www.centralbankbahamas.com and projections for 2020 based on these baseline numbers [Hint: You may also wish to update these numbers to reflect numbers for 2021]:

Table I: Key Metrics for The Bahamas

Key Metrics As at 2019 (Pre COVID-19) Impact - Projected 2020 National Debt as at December, 2019 58,749 $10,413 (Smils.) Debt in Foreign Currency (Smils.) $2,618 54,282 Foreign Reserves as at Feb., 2020 (Smils.) 52,001 5900 Gross Domestic Product (2019) (Smils.) $12,900 $10,900 National Debt as % of GDP 67.8% 95.5% Tourism Expenditure as at 2019 (Smils.)* $2,817 $1,665 Unemployment as at November, 2019 11.0% 24.8% Government GFS Deficit (Smils.) (5377.6) (51,664)