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Essdar Investments Ltd., a Cayman Island-based fund, agreed to buy US $655.5 million of outstanding notes backed by Oman’s stalled Blue City development at a 37 percent discount.

 

Essdar, an investment partner with Dubai-based Essdar Capital Managers Ltd., and owned by members of the Abu Dhabi ruling family, will hold 99 percent of two notes sold in 2006 by Oman’s Blue City Investments 1 Ltd. following a tender offer, it said in an e-mailed statement from Dubai. The notes had a combined $661.5 million of outstanding principal as of November 2006, the company said.

 

Blue City, a massive $20 billion project, an hour from the capital, Muscat, was supposed to produce more than 200 villas, 5,000 apartments, four hotels, two golf courses and a clubhouse, according to the notes’ prospectus. A total of $925 million was raised from bondholders to finance construction, which started in 2006.

 

Essdar said it will pay $630.3 per $1,000 for $399 million of outstanding Class A1 notes due 2013 and $624.8 per $1,000 for $262.5 million of Class A3 notes due 2016.

 

June 9, 2010

 

 

Analysis and Forecast: Decreasing Risk

 

The Blue City project has been promoted as Oman’s cornerstone’s real-estate project and a key part of the country’s efforts to diversify its economy away from oil. However, soon after the project started, legal battles between the owners threatened to stop the project altogether. This combined with a much lower than expected sales, partly due to the global financial crisis, raised serious questions about Oman’s ability to diversify, particularly into the real-estate sector.

 

The likely revival of the project will therefore help put Oman’s plans for diversification, particularly into real estate and development back on track.

 

The graph below show the current make-up of the Oman GDP and the one that the government is hoping to achieve by 2020. Blue City was seen as a pivot in this plan: