Blue City, Oman’s flagship property development could be forced into liquidation under plans being considered by the company’s board of directors. The National of Abu Dhabi daily published a report about a meeting of the board of Al Sawadi Investment and Tourism Company (ASIT), the parent company of the project in which it sent out a notice calling for investors to vote on the “dissolution of the company and filing subsidiaries”.
“The company has lost all of its capital and have no reasonable expectation to meet their debt payment obligations when due,” the letter said. It was signed by Anees Issa al Zadjali, the chairman of ASIT.
The ASIT letter prompted the Bank of New York Mellon, the issuer of a US$925 million bond that Blue City was to use for the first phase of construction, to send out a notice to all bondholders informing them of the “proposed dissolution of the borrower”. The bank said Blue City had failed to make interest payments to Class C and D bondholders last November and that it had entered negotiations with Class A bondholders to restructure its obligations.
Blue City was launched as Oman’s first major foray into large, master-planned property development. The original plans for the 20-year project showed a new 32 square km city with hotels, schools, apartment buildings, villas and recreation areas. Construction had already begun on the first phase of the site, a 2.2 sq km piece of land near the coast. The land was provided by the government of Oman. But the project has faced challenges from the start. Its two shareholders, AAJ Holdings of Bahrain and Cyclone of Oman, have been in a legal dispute over ownership of the company for years. Blue City has also missed consecutive sales targets required by the bond financing the first phase of construction.
Moody’s said that as of last November, Blue City had a total of US $74.6m of sales compared with a target of US $860m. The failure to meet the target “should have triggered a mandatory prepayment of the inter-company loans”, Moody’s said, but there had been no announcement about this from the company.
March 12, 2010
Analysis and Forecast: Increasing Risk
Blue City has been showcased as Oman’s foremost development project to attract foreign investment as the country attempts to diversify its economy. The project has faced serious setbacks since it was launched including legal disputes.
It’s failure is not only a failure for Oman’s leading real-estate project, but is also a setback to Oman’s diversification efforts.
The failure also undermines credibility in the Omani real estate market and will likely cause ripples that will be felt for a number of years, presenting a serious challenge to Oman’s efforts to become a leading tourism destination. The shaking in the credibility will also likely impact on other sectors which the government is eager to develop.