Further details in the story (see below) by The National.
Not a bad deal. The bonds are secured not just on Phase 1 but on the land for the entire Blue City project. Essar's cunning plan is to spend just some $300 million buying the required % of key secured bonds to control the whole deal. Thus they would be in a position to acquire the significant $1.5bln ITD that's already underway, plus get the cash and all the land, and the added value of lots of free Government infrastructure. All for $300mln. This is not a 'high risk high return' strategy as they try to say, its clearly a low risk high return investment.
The Dragon notes there are rumours that the real money behind the move is actually... Omani Government, and that they are effectively underwriting the UAE company as a front-purchaser to keep the price down on their purchase of the bonds. Makes a lot of sense if true. Essar provide the finance, and get a fat fee, plus I guess a share of the difference between any bonds that trade at less than 70%.
Meanwhile I got an email from an apparent purchaser of a Blue City apartment. He says the expected completion date has been moved to the very end of the contract period in 2012 (as far as it can without triggering deposit refund clauses), and that BCC1 staff bonuses due at end of contracts were accelerated and paid to staff this month? Maybe getting the most out of the last big pre-purchase $20mln deposit cheque??? Any comments from the BCC1 lurkers?
Blue City/BCC1 is turning into our main domestic AIG/GM story... except there's no actual news or investigations reported publicly. We need someone in Government to take control of this critical strategic project and provide the key backing and commitment to save it, along with a lot more sunlight on what's been going on at BCC1.
Meanwhile the UAE youth are also screwing us over with their SUVs...
UAE Drivers accused of rampaging over Oman’s wadis
Aug 02, 2009
With waterfalls, wildlife and temperatures as low as 18C, the wadis of southern Oman are an appealing destination for tourists looking to escape the summer heat.
But when they get there, drivers from the Emirates are not treating the lush, green land with the respect it deserves, complain the local authorities.
They accuse young drivers, especially, of cutting across the soft ground in their four-by-fours, pulling stunts that scar the vulnerable grassland during the area’s khareef, or monsoon, season.
“These youth show an uncivilised attitude,” said Ahmed Salem, the operations officer at the Governorate of Dhofar police command. He said drivers in SUVs with blacked-out windows regularly spoilt the greenery with stunts.
“They do things with the cars that are unacceptable. It’s a widespread phenomenon. They should respect the laws of the country they go in.”
And here's the play for Blue City. Strange that the Essar executive mentions their target discount range in public...
Omani investors shed Blue City bonds
August 02. 2009 6:30PM UAE
ABU DHABI // Essdar Capital’s bid to buy bonds related to the troubled Blue City property development in Oman is receiving a “strong response from the market”, with many holders accepting a 50 per cent discount on their bonds, a top executive says.
The fund is trying to obtain at least 75 per cent of two classes of bonds for the project in a “high-risk, high-return strategy”, said Suketu Sanghvi, the senior managing director of Essdar.
“I think the response is coming because for a very long time these bonds have been extremely illiquid,” Mr Sanghvi said. “Many of the investors wanted to get out of this investment.”
The arrival of Essdar Capital comes just weeks after Moody’s Investors Service and Fitch Ratings downgraded Blue City’s bonds to near junk status.
Executives at Blue City declined to comment yesterday. The project is the largest under development in Oman and involves building a city about 45 minutes north-west of Muscat.
Under the original plans, the US$20 billion (Dh73.46bn) development would include hospitals, schools and entertainment facilities for 200,000 residents by the end of its 20-year construction process.
With Oman’s oil supplies dwindling, Blue City was part of the country’s efforts to diversify its economy into new areas such as tourism. It was also an attempt to provide locals with more housing, which is in short supply.
But Blue City has been plagued by problems since its launch in 2006. A protracted legal dispute between two shareholders, AAJ Holding of Bahrain and Cyclone of Oman, over the ownership of the company is continuing. And sales have been under the targets set in the original bond documents.
As of August 1, Blue City had sold $53.9 million worth of units, far short of the $639m it expected to have. This prompted the ratings agencies to downgrade the bonds last month.
Moody’s said it was lowering the credit rating on about $399m of senior notes from the company to “Ba1” from “Baa3” because of “worse than expected transaction performance and a less favourable macroeconomic environment”.
Fitch Ratings downgraded four other classes of notes, worth $526m, to “CCC” and “C” from “B plus” and “B minus”, citing the deterioration of Oman’s property market.
“Demand for retail villa and apartment at integrated tourism resorts in Oman appears to have reduced significantly over the last 18 months and has collapsed entirely on the project itself, with no sign of recovery in the short or medium term,” Fitch said in a statement.
The agency said sales were so slow that there was not enough money to pay the construction contractor, AECO, and if “revenues do not significantly increase in the short term, money remaining from the advance payment will likely allow the contractor to be paid for approximately three more months”.
But Mr Sanghvi said Essdar Capital saw a high potential to make a return on the bonds, in part because the Omani tourism sector was growing.
“The good thing about this project is the tourism element,” he said. “We do believe in the story of tourism in Oman.”
The A1 and A3 bonds that Essdar is trying to acquire are also backed up by a cash deposit and land, which could be liquidated in the worst case scenario, Mr Sanghvi said.
The bonds represent about $661.5m of a total of $925m raised in the original bond offering. Essdar is trying to buy the A1 bonds at a discount of between 29 per cent and 50 per cent, and the A3 bonds at a discount of between 37 per cent and 50 per cent.
The goal, Mr Sanghvi said, was to obtain at least 75 per cent of the bonds so that Essdar Capital would have the majority of the voting rights to put it in a position of power when it comes to changing the terms of the bond, or deciding what to do if the company cannot meet its obligations.