Blue City may be reaching end of the road

Blue City appears to be on the brink after bond holders rejected a restructuring plan by the company.

Oman's Blue City project, which was due to play a major role in the country's diversification plans, could be liquidated within 12 months under plans being considered by some of its bondholders. The planned US$20 billion (Dh73.46bn) property development an hour from Muscat was to have included housing, offices, hotels and universities for some 200,000 people and be built over two decades.

The project was bogged down from the start, however, by an ownership dispute, design changes and slow sales. It issued an almost $1bn bond to finance construction of the first phase in 2006. Essdar Capital, an investment company based in Dubai, bought more than 99 per cent of the Class A bonds associated with the project this year and last year, giving it control of the project. Earlier, the company said it would attempt to help the Blue City Company 1 (BCC1), which was in charge of the first phase of Blue City, restructure so that it could move forward with the project, but a proposal put forward by BCC1 in August was rejected by bond holders.

A source involved with the Blue City project said Essdar was deciding "when, not if, it is going to enforce its rights". BCC1 described the "difficult times" the project was facing in a presentation made to bond holders obtained by The National. It described an "excessive and expensive debt burden" and "onerous debt covenants" together with an "inflexible construction contract" and "general negative publicity surrounding the project".

The proposal included plans to write off part of the debt, reducing costs by 10 per cent and raising a further $150 million in funds to continue development. Richard Russell, the chief executive of BCC1, declined to comment yesterday. If Essdar enforced its rights as the holder of the Class A bonds, which are secured by more than $250m in cash and 25 square km of land, then the project would be liquidated. A new developer would have the opportunity to buy the land in an auction but it would be unlikely to continue under the name Blue City.

Suketu Sanghvi, a senior managing director of Essdar, said yesterday the company would make an announcement on its plans within a month. The Oman government, however, could step in and cancel a concession granted to the Blue City project. It agreed to sell the land on condition that it was developed. Without a concession, the land's value is difficult to calculate. Officials from the Oman government declined to comment yesterday.