Monday, December 24, 2007

Blue City – The real story: Bahrain Businessman Ahmed Janahi Forced Out

You'll have seen the ads around for the Blue City, now of late called Al Medina Al Zarqa, a mega-development in Al Sawadi with the usual hotels, freehold apartments, golf course, marina, etc etc. Read on for the latest story surrounding this project.

Muscati recently noted Muscati's blog the very unusual letter to stakeholders that was sent on Sept 17th to investors and 'stakeholders' by Anees Issa Al-Zadjali, the CEO of Blue City Company 1 SAOC, about reports of the legal battle between AAJ Holding, the Bahrain-based originators of the scheme, and Cyclone LLC, a private company who had 30% of the action and part-owners with AAJH of the various Blue City development companies.

Cyclone is asking for a right to acquire the shares in Ocean currently owned AAJH arising from the circumstances in which the ASIT were originally acquired by AAJH. Shares in ASIT were subsequently exchanged by Cyclone and AAJH for their current holding of shares in Ocean. If the claim is successful, Cyclone will emerge as the sole shareholder in Ocean. Cyclone is an Omani company wholly owned by Omani shareholders.

It seems Cyclone was suing AAJ for all the shares, claiming AAJ were insolvent. A similar claim was made in a related US lawsuit too. Of course, claims of insolvency are a common tool of the legal process and don't necessarily mean anything real.

Dragons informants tell a different story... which may be true, or totally not true. But they are highly placed, so judge for yourself.

AAJ and their flamboyant CEO, Bahraini businessman Ahmed Janahi, were instrumental in putting the original development deal and vision together. (See a nice set of links and info on AAJ Holdings from the wonderful Sue Hutton and her non-Oman based NewsBriefsOman) AAJH organized the slightly shady financing deal that successfully raised close to US$1 Billion in capital to underwrite the $2 Billion++ Phase 1 development. You can also see in the previous link more on the strange financial group Oppenheimer Investments AG, and their no-relation-what-so-ever to the famous South African Oppenheimers, which was the basis for that other law suit in New York this year.

However, it seems that once the project was funded and clearly able to fly, the Omani shareholders in Cyclone weren't too happy giving 70% of the hopefully substantial profits to Mr Janahi.

So, my sources tell me AAJH was basically told to 'get out of Dodge' by Cyclone. They gave him a choice: 1/ To sell all his shares to Cyclone in return for just his original investment expenses, or 2/ They would use their significant connections to make sure he got nothing at all, ever. Mr Janahi is no fool, and apparently gave in to the request by choosing Option 1.

The AAJH website and the Blue City website still list Blue City as a project AAJH are involved with.

But AAJH in Bahrain told me somewhat mysteriously over the phone that (quote) 'err, no, they are no longer involved with the Blue City project in Oman'. (unquote) Which is fully consistent with my source's side of the story.

Of course, maybe it wasn't the money at all, but that Cyclone just didn't want to be associated with someone who is involved with Michael Jackson... Gulf News. It seems AAJ is quite friendly with Michael and thought he could help provide the entertainment he thinks is key to such a project. Hmmm.

The shareholders in Cyclone are apparently a member of the Omani royal family and a local business personality: see story in AMEinfo. Presumably Cyclone were able to supply the land as their part of the deal, along with a commitment from the Government to provide the significant infrastructure development essential to such a mega-project [roads, power, water, legal framework, rights for the waterfront developments].

So, Cyclone's shareholders end up with the whole deal, a checkbook with about $1 billion dollars (less the not insignificant fees of about $42million apparently paid to the financiers and all those associated with the bond deal) and can also now totally control the cashflow and all other aspects of the development. Sweet move.
Update: The member of the Royal Family (reported in AMEinfo) who owns a big part of Cyclone (and hence Blue City) is apparently HH Sayyid Haitham bin Tariq Al Said, also the current Omani Minister of Heritage and Culture. The 'prominent businessman' is as yet unidentified...

It would seem clear that the move against AAJH had the support of the highest levels of Government. I'll keep trying to get more comment from AAJH and more detail on the shareholders in Cyclone.

Background
Note the company structure for Blue is quite complicated as is not uncommon with such mega-projects.

There are the original private investment companies, AAJ Holdings and Cyclone LLC. They owned 70% and 30% respectively in Ocean Developments SAOC, who in turn own Al Sawadi Investment & Tourism Co. LLC (ASIT), Blue City Company 1 SAOC, Blue City Phase 1 Land Company Limited, and Blue City Future Phases Investment Company Limited.

AAJ Holdings Corporation (AAJ Group) AAJH was founded by Ahmed Abubaker Janahi in the British Virgin Islands as a limited liability company known as AAJ Holdings Limited (AAJHL).

AAJHL exclusively owns a Bahrain based group of companies known as AAJ Holdings Company (AAJHC), a closed shareholding company. AAJHC represents and withholds AAJ Group's interests, which are predominantly real estate focused professional companies as well as equity stakes in real estate developments.

Cyclone LLC was also involved in some fish farming and fish processing projects in Oman. As a private company with few shareholders it is very hard to get any details. Anyone who has some info on Cyclone can email the undercover.dragon@gmail.com in complete confidence.

Ocean Developments SAOG, owns Blue City Investments 1 Limited (BCI1) - the actual 'Issuer' of the bonds. The bonds are secured against the project cash flow and the land for not just phase one but other phases as well. (Exactly how that land can be used as security given Oman's strange laws on property ownership I haven't been able to find out.)

The Blue City Company 1 S.A.O.C. (BCC1) is the 'Developer' of Phase 1 of the Blue City Project by virtue of the 'Works Agreement' with the owners, and the 'Borrower' of funds (from the proceeds of the Bonds) to implement the project under an Inter-company Loan Agreement from BCI1, and it acts as the 'Employer' to the Design & Build Contractor for the implementation of the entire scope of Phase 1.

The Blue City, known in Arabic as Al Madina Al Zarqa, is a tourism and residential development being built in the Sultanate of Oman. The eventual US$ 15-20 billion project (if it gets that far!) will cover a triangular area of 35 square kilometers (14 square miles) along the Al-Sawadi coastal region. It will be a 30-minute drive from Seeb International Airport, 100 kilometers (60 miles) from Muscat and 10 kilometers from the closest town of Barka. The first phase is being built at a cost of about $2 billion. Also note that the take-over by Cyclone should not have any detrimental impact on the viability, schedule or funding of the project.

11 comments:

  1. I work on the Blue City project, albeit in a limite role, however, the article you have written is indeed essentially correct, the boys from bahrain were indeed given directions to the door. And this is *very* recent news, as there has been a flurry of meetings over the last 2 weeks as the project has "restarted" again.

    There's also a "spin-off" project commencing just near to the Blue City project site, on the barka side, called Al Malkai, which will be a private golf club/gated community with both villa's and apartments... sort of a satellite to Blue City.

    Expect more similar spin-offs to pop up soon!

    Happy Christmas UD, and all the others reading your blog :)

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  2. Thanks Lurker!

    Good to have confirmation. Any idea though why AAJ was kicked out so forceably? Was it just the money (as my source said), or something else?

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  3. I can only speculate, but I know that there was some frustrations at the slowness that the project was progressing. This could possibly be a reason why AAJ were booted. I've also heard that only "approved" Contractors are allowed onto the job, which of course management own a stake in (possibly the departure of AAJ could be a result of such a nomination?). There's also a rumour that the design team have burned through almost a $1 billion in design phase costs.... so I'm not exactly surprised some heads rolled, more will follow, for sure.

    At the end of the day it's about money, it always is.

    In other news, I ate too much turkey yesterday, and still feel sleepy :)

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  4. Update: The member of the Royal Family (reported in AMEinfo) who owns a big part of Cyclone (and hence Blue City) is apparently HH Sayyid Haitham bin Tariq Al Said, also Minister of Heritage and Culture. The 'prominent businessman' is as yet unidentified...

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  5. I worked on the blue city project out of the aaj offices in cape town, It is amazing how much we were kept in the dark until june of last year when we were all dismissed and the office closed I would like to know what aaj are up to, so would many people in cape town as there is a large legacy of bad debt left by the arogant Ahmed Janahi

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  6. The latest info here in Bahrain is that this project has now totally nose-dived, and that the Miri COO guy is indeed a true sociopath and something of a malignant narcissist to boot. Seems folk are being made redundant too. Also, as I understand it that if this project were to go ahead it would be the biggest environmental catastrophe in the region. What a crazy, crazy bunch of bozzo's. On, on!
    Willie Dryer

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  7. Anon,

    Can you email me at undercover.dragon (at) gmail.com? I'd like to know more details.

    Who do you mean Miri COO [chief operating officer?]

    cheers,
    UD

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  8. Dear All...

    Today 23rd March... A day o remember as the courts in Oman have ruled that the case none valid and AAJ Holdings own the 70%..

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  9. Undercover Dragon, can you please confirm if the Bahrain businessman has indeed been removed from project, as sources I have spoken to recently confirmed he was still very much involved?

    I am just an interested businessman looking to invest in Oman

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  10. Is this project still on? Are all legal & ownership problems sorted out?

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