An Abu Dhabi investment company's acquisition of the senior debt of the largest property development in Oman is likely to boost the country's property economy, analysts say. Blue City was envisioned as a US$20 billion (Dh73.46bn) tourism centre about an hour from Muscat on the Indian Ocean. The project slowed when the financial crisis hit in 2008 and is now effectively controlled by Essdar Capital, a company backed by two members of the Abu Dhabi Royal Family.
"Now that there is a new company in control, it will allow for a lot quicker decision making about moving the project forward," said Ian Gladwin, the Oman-based regional director of the property consultancy Cluttons. "It's vitally important that the project is seen to progress. It can only be good for the real estate market of Oman." Blue City was part of Oman's attempts to diversify the economy to include a greater amount of tourism as its petroleum resources declined. The first phase of construction, overseen by Blue City Company 1 (BCC1) - an entity dedicated solely to delivering phase one of the 20-year project - was funded in part with $925 million of bonds issued in 2006.
But the project has hit obstacles from the beginning. A protracted dispute between its owners and slow sales caused the project to miss sales targets required by the bond terms. Al Sawadi Investment and Tourism Company, which is co-owned by the disputing parties, announced in January that it would hold a meeting with bond holders to vote on dissolving the company because it had spent its capital and had no "reasonable expectation to meet their debt payment obligations when due".
But the project took a new turn last week when Essdar Capital announced it had acquired a total of 99 per cent of the A1 senior secured loans due in 2013 and A3 senior secured loans due in 2016, at a discount of 63.03 and 62.48 US cents, respectively, on the dollar. The class A notes are secured by 2,500 hectares of land and about $450m of cash held in an escrow account. Suketu Sanghvi, the senior managing director of structuring and investments at Essdar, said the investment gave his company "significant control over decision making on the project". The focus would be on getting the hotels up and running to take advantage of Oman's under-supplied tourism sector, he said, declining to comment on whether the company would inject new funds into the project.
Essdar is majority-owned by Sheikh Tahnoon bin Zayed and Sheikh Hazza bin Zayed. Richard Russell, the chief executive of BCC1, declined to comment. The revival of the project was also a sign that it is possible to have successful buyouts of distressed projects in the region, said Khalid Howladar, a vice president at Moody's Investors Service, which downgraded Blue City's A1 bonds to "Caa3" in March. That rating implies the bonds are of "poor standing and are subject to very high credit risk".
"It definitely shows a step in maturity for the capital markets when you've got private investors getting involved in distressed situations and making projects viable again," Mr Howladar said. "It has major consequences for the region as a whole in that it could signify that investors are willing to enter the real estate market now ? It sets a positive precedent." bhope@thenational.ae
