Part of the report…… Illiquid debt markets and a decrease in property sales have put Cap Cana and similar projects in the Caribbean region under severe strain. Much of Cap Cana’s debt is secured by sales receivables and the value of the underlying property. Given the illiquid nature of the collateral and rising risk that construction will not mean targets, the project is facing a reduced value of receivables and worsening cash-flow problems. Meanwhile, the price of Cap Cana’s existing bonds has declined sharply in the market as investors have lost faith in the developer’s ability to pay.
It is highly doubtful that the project developers will be able to secure affordable financing in the current international environment with which to both replenish the trustee’s reserve fund and to meet the November 19th debt repayment date. They will have to hope for a capital infusion by new or its existing direct investors. Without this, the much-vaunted Cap Cana project—the Dominican tourism sector’s crowning glory—could become insolvent, and, as is feared by some local experts, could collapse entirely.
This will have negative effects not only for external creditors, but also for the local investors in the project, led by the Hazoury family, as well as for local banks, suppliers and contractors. The state-owned Banco de Reservas reportedly loaned the equivalent of US$147m to Cap Cana for mortgage credits, and other private banks may have also extended financing.
Bursting the bubble?
The same problems facing Cap Cana could well afflict other high-end property projects in the country, including the ongoing development of resorts in Punta Cana, the country’s most important tourist destination, as well as Roco Ki, another huge residential and vacation complex.
Some may now argue that Cap Cana was always overly ambitious and costly for a country like the Dominican Republic, a middle-income developing country with a GDP of US$46bn and a per capita income of US$4,900, but one with large swaths of poverty and infrastructure problems, such as a chronic energy crisis.
Some projects may have to be scaled back and others closed down, as the financial crisis persists and global recession advances. This will inflict collateral damage on the construction industry, employment and the country’s external accounts, as less foreign investment flows in. The fall-out from the global crisis, it appears, has started to rain down….. read the full report
Cap Cana News 