Mega tourist resort Cap Cana, the most ambitious leisure project in the Caribbean, has smashed records for a Dominican corporate issuer.

Any doubts as to the power of the Dominican Republic’s tourism industry are laid to rest by Cap Cana, the largest and most ambitious leisure project in the Caribbean.

The complex covers an area of 122 square kilometres (it is twice the size of Manhattan), with 5.6 kilometres of beachfront. Last year, Cap Cana launched the largest corporate bond in the country’s history, a $250m, seven-year issue at 9.62%. This was the first time that a Dominican company has been financed in the international market at a rate below 10.87%, and Cap Cana is the only Dominican corporate issuer to be assigned a B rating by Fitch Ratings and B3 by Moody’s Investors Services.

This bond issue enables Cap Cana to fully liquidate its $62.3m obligations with domestic banks. The remaining net funds will be used to accelerate the project’s development. This was in many ways a benchmark transaction. Cap Cana, along with its adviser and sole bookrunner Bear Sterns, developed an innovative financing structure with a level of complexity and sophistication that the issuers claim is unprecedented in international markets.

Robust structure

The structure provides investors with a high level of protection by integrating a dynamic system of guarantees, which adjust as the construction project moves forward. This provides Cap Cana with flexibility to increase its sales levels, provide customers with more attractive payment terms and significantly speed up development.

Funds from the bond issue were deposited in an escrow account to be disbursed for construction purposes under the supervision of The Louis Berger Group, which acts as an independent engineer.

Strong investor response to the transaction, as evidenced by a significantly over-subscribed order book of more than $1bn, enabled the issuers to increase the size from $200m to $250m, with a reduction in the interest rate that is unprecedented for a Dominican corporate issuer.

International property services company CB Richard Ellis rated the Cap Cana property at $1.11bn. Jorge Hurtado, a director at Ellis, says that Cap Cana stood out because of its ambitious dimensions. “The project’s distinctiveness, along with the prices it has achieved, reflects an impressive proposition of added value equal to the top destinations in the Caribbean,” he says. “Given this appraised value, even after this bond issue, Cap Cana’s debt levels will remain relatively low, since its total debt represents less than 30% of the project’s value.”

The success and low cost of the bond issue reflect the perception of reduced risk among foreign investors and widespread international interest in the project. This perception was enhanced with the recent visit of US entrepreneur Donald Trump to the Dominican Republic to launch the Trump Farallón Estates at Cap Cana. Within the first four hours of its first day, Cap Cana set a new sales record of more than $350m gross and 95% of inventory, the highest sales figure reached in a single day by a property development anywhere in the Caribbean.

Mr Trump said at the sales launch that he had chosen the Dominican Republic as a place for property development because of his close relationship with the Hazoury family, as well as the country’s stability as a foreign investment destination. “This is a combination of land, nature and the union with Ricardo Hazoury, and for that reason the results are visible and palpable,” he said.

Cap Cana is an initiative of the Hazoury family, whose business empire covers construction to hotels. By 1995, the Hazoury group controlled 20% of the country’s hotel capacity. “That is when we took the decision to expand into tourism and acquired land in Cap Cana,” says the group’s president, Ricardo Hazoury. “We took the view that there was a market for second homes or residential tourism. This was something similar to the Spanish experience of the 1960s and 1970s.”

The initial outlay on infrastructure and support services was $500m, a figure that Mr Hazoury expects will eventually increase to $800m. “To give an idea of the size of this project, we estimate that Cap Cana will generate a $10bn investment in property.”

Cap Cana will be developed in three stages over the next 12 to 15 years, at the end of which the complex will comprise 5000 residential units and 500 hotel rooms, plus a marina with more than 1000 slips accommodating 150 yachts. The infrastructure work is on a huge scale, with 44 kilometres of roads, water tanks capable of producing 1.5 million gallons of water a day, a five-megawatt power plant, five golf courses, and a 10-minute connection to Punta Cana International Airport, the country’s busiest international airport.


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