Sunday, January 31, 2010

Blue City: An update.

The problems at Blue City continue.

Even the rather distant Bank of New York Mellon, custodians of the purse strings, seem to be fully aware that the money they are responsible for doling out on behalf of the bond holders is being pissed away on high salaries and pocket-lining for the gilded few at the top of BCC1. As a result they have turned off the taps as much as they can. Richard Russell has been flying so often to the big apple, cap in hand, he must be past platinum class on his frequent flier miles.

As Samir Pandiri, Managing Director at Bank of New York Mellon put it, in this hilarious excellent piece on the extensive financing controls for Blue City:
Welcome to Blue City, the landmark development in Oman that is a case study for the rapidly evolving world of project finance and expanding role of trustees. In this Global Corporate Trust Innovation Series edition, Samir Pandiri discusses the financial complexities of building Blue City and the future of project finance it represents.

On this landmark tourism development project, The Bank of New York Mellon was selected by Blue City Investments 1 Limited to provide multiple corporate trust services, including acting as trustee, registrar, agent, cash manager, account bank, lookback calculation agent, and Irish paying agent.

What makes this deal different is that the trustee is involved in every part of the transaction, well beyond the trustee’s normal project finance role. The Blue City project required a hybrid approach, with structured finance, credit enhancement, real estate financing, and project finance rolled up into one seamless package. Phase 1 groundbreaking, for example, was delayed by architectural revisions. As trustee, The Bank of New York Mellon was required to review certain consent requests and acknowledge that the resulting consent to delay would not jeopardize bondholder rights or result in rating downgrades.

The ownership structure, securitization, and international cash flows also make this project different. For example, the notes are protected by reserve accounts backing payment of principal and interest on certain series, a credit insurance policy backing payment of principal on certain series, real estate collateral, cash flows resulting from sale of the residential properties, and operating cash flows from the nonresidential assets once operational.

The successful sale of residential properties will ultimately determine whether the project can move forward. As trustee, The Bank of New York Mellon is charged with making that determination on the part of the investors by applying a capital expenditures test and a residential sales test. The Bank’s global analytics group will perform the tests, monitoring and performing calculations based on raw data provided by various parties....

Ahem. Yes.

So, as the coffers are almost empty, salaries for the elite have not been paid so far this year, at least not by BCC1. I'm reliably informed the last salary cheques had to be funded by parent company ASIT. Meanwhile, 15 senior expat staff at BCC1 were given notice a couple of week's ago and will have to vacate their positions. More expats are due to be culled soon, including, rumour has it, even Saleh Miri, CEO of parent ASIT. I already reported the jettisoning of project management contractor ACE and the storm clouds over the future involvement of the (pretty good) main developer AECO, who also haven't been paid for months.

Interestingly, I'm told the indescribably valuable services of Ms. Margarita Filipotti, award-winning Marketing Director of Al Madina A’Zarqa, are deemed by the controlling Al Zedjali brothers to be well worth retaining, even at a surprisingly pricey salary of 7,000 rials a month. She must be a top performer indeed, and of course there is so much marketing to be done!

Yes, 7k a month. Hey, the whole senior management team have long been on similarly large and larger wads. (7k RO is about US$220,000 a year tax-free kids, plus the expat perks too. Sweet deal for an almost bankrupt company isn't it? Amazing how easy it is to spend borrowed money when someone else is doing the borrowing...)

Paranoia is also building, with BCC1 even trying to use text comparison analysis to find who is leaking the info on the project. Someone there has been watching a little too much CSI Las Vegas lately (fear not chaps - I am NOT a BCC1 employee. Even you guys don't pay enough...)

The Bahrain ex-partners, AAJ Holdings, who got the original deal off the ground and who helped to get the $925 million in junk bonds sold via ever-so-slightly-dodgy Oppenheimer Investments AG**, are amazingly still battling it out in the courts. They - surprise surprise - lost the most recent court case but are re-appealing the decision. By the time they win, if they do, there will be precious little left worth winning.

Photo: Early days. Did anyone realise at the time that the billion dollars was just for the model?

The real power is in the ownership of the bonds, and the key role to be played by trustee BoNYM, IMHO.

Doing the rounds - crazy as it sounds - is the rumour that the real strategy post-real estate meltdown* is to effectively bankrupt the BCC1 holding company, and thus activate the default on the bonds (which are secured against the full 32km2 of beautiful land that was presumably provided free to enable the glorious development and at the same time provide the equity stake of Cyclone LLC)... With bankruptcy, AAJH would be left with 70% of a dead company (if he wins the appeal - which is likely) and even end up potentially liable for the multitude of subsequent claims; the main contractors AECO would have no-one to claim the early termination fees from (a hefty 10%, I'm told); and who-ever picked up those Blue City junk bonds last year for 60 or so cents in the dollar could then claim all the land, plus whatever's left in the escrow funds from sales deposits already made, resurrect the development (with new local contractors), finish the scaled down ITD development, and make a huge profit from those redesigned villas that have (perhaps) already been sold! Wow.

But of course that would be totally insane. Imagine the incredible damage to Oman's reputation if the most important project in Oman's history went bust and defaulted on its obligations; the squandering of the land that was meant for 'A new city of 200,000 people'; the lost goodwill of contractors and financiers across the world; and the waste of all that Government paid-for infrastructure (including power supply, roads, the mega-fast-fibre optic cable links to India, etc). Simply to enrich those few who would stand to gain from such a dastardly scheme? It's the most preposterously unbelievable and untrue rumour I've heard in a long time. Afterall, the 'conspirators' would have to both control ASIT and BCC1 and the bonds and be in a position to control the spin on the bankruptcy through the media and handle the ramifications within the highest reaches of the Government and be able to influence the Government to still deliver the infrastructure support. Like I said, this is so obviously impossible it must be simply untrue.

So that's alright then.

*scapegoat of the year, BTW. We can keep blaming the USA and Jewish financiers!
**No connection what-so-ever to the famous Oppenheimer family, as law suits in New York attest. Shady. And they charged $25 million. Sweet.

Photo: ASIT Chairman, Anees Al Zedjali, tells it like it is.

As real estate developer par excellence and part-time newspaper editor, respected ASIT Chairman Anees Al Zadjali said so eloquently:

"The Blue City is one of the most important developments in Oman. It is much more than just a real estate development. We are creating a city which will take Oman into the next century, providing not just homes, but new jobs, new industries and a legacy for the future," he added.

"As the cornerstone of the new city, the first phase of the development will set the tone and style for what is to follow and will offer wider opportunities beyond freehold property."


In totally unrelated news, Muscat Daily confirmed yesterday the report last week of the largest ever fraud in Oman history, with a ponzi scheme that ripped off some 3,200 people of over $220 million dollars.

Hmmm. Perhaps that should have read largest ever to-date?


  1. Blue City = largest ponzi scheme....;)I would not buy a packet of peanuts from those people.
    About that chick's salary, well, I might apply for a job in marketing there; I wouldn’t mind being her assistant with all that marketing she’s doing she definitely needs a hand…or two.

  2. With ventures like this it has always struck me that Oman is one letter a short of a Dubai. Still, you can only but laugh at the shear chutzpah of the uppity donkeys in this whole zany caper. It would seem that other than a variety of hired in building designers and contractors that they are all (as otherwise) just bent 'skimmers'. Where's Bernie Madoff in all this? How did he miss this one? 7K? 7 freaking K? Ahhhhoy... There she blows!

  3. "valuable services of Ms. Margarita Filipotti, award-winning Marketing Director of Al Madina A’Zarqa,... even at a surprisingly pricey salary of 7,000 rials a month. She must be a top performer."

    The important question is "Is she married?" I think I am in love with her. I love 'top performers!'

    Ruwi Master Plan's first four-star hotel complex to be ready by 2011

    A new 5 star hotel is going to be built in congested Ruwi area.
    Please see the above link. Please give us more on this master plan.

  5. OCI

    Well, at least you're professional marketing degrees. I'm sure Blue City will be hiring soon. Else follow the award link and maybe contact the consultants who put together the package.

    Well, its not in anyway related to a Ponzi scheme. But I can appreciate the reference to the literary classic Moby Dick. They really are chasing a big fish.

    I don't see why there would be any connection between marital status and job performance, you sexist. There are lots of unmarried women out there doing great work. And working one's way up to earning US$220k a year is a self-evident demonstration of good performance, especially within the high performance culture that permeates BCC1. I'm certain Anees demands very high standards.

    Maybe you should start a blog?

  6. Silly Dragon... Moby Dick was a mammal, but yes a big one at that. Anyway, I hear there are a lot of whales around and about Oman, and now seemingly at least one white elephant as well! Mmmmm, maybe we ought to change that now to a Blue Elephant? What say? Also, Anees is a bit of an old tusker eh, and so it all kinda fits. For 7K the filly must be very able in helping matters along in that regard. To my mind Marketing was always a bit of an over-blown profession. Don't you think so?

  7. No comments from good old Richard (or his commercial dog) this time? How typical. Maybe time to go home, yankee? I'm sure you would make a darn good senator down there in Florida. You could even bring all your Filipina 'staff'!
    I wonder when we will read some more official, factual, objective news about all this great stuff in the Times of Oman. Even if it can not be blamed on the jews (Oppenheimer et al?), it can still be easily linked to the Americans. Same thing anyway, right?
    But guys, please, respect for Miss Filipotti. She is working around the clock and has been doing so from the start. Besides, I'm pretty sure you and I would not want to carry out the tasks given to her by Mr. Anees, not even for 7k per week!
    All still good fun at Blue (Sin) City, that's for sure!!

  8. Blue City? Yes, dire straits eh? Yes, yes, most certainly. But I seem to recall a certain song went something like... "money for nothing and your chicks for free". Now there's a thing. Couldn't they figure that one out? Duh!

  9. This little snippet from the Bank of NY presentation should have cracked you up:
    "Bear Stearns acted as arranger and joint lead manager."
    or this classic:
    "Blue City is expected to set a precedent for other project finance transaction structures, especially if this one proves to be successful." HA HA HA HA

    Blue City is a dog with so many fleas it is destined for failure.

    Little Dick Russell aint no CEO of a Property Development company....he's just a very political builder/PMC.
    Have a look at the state of Al Qudra/QPI for a pre-cursor of this guys track record.

    But in true Omani style it will be denial central until the sugar-daddy-fairy bails them out 3 seconds before implosion.
    Too Big Too Fail - Oman style.

    Cheap beachside apartments anyone???

  10. About the Ponzy scheme news, Oman Observer was the first to report with its Arabic sister daily Oman - three days before Muscat Dailly did the cut and paste job.

  11. your absolutely right ibrahim

  12. Re Farmer Joe,

    .... and speaking of beachside property anyone had a look at the Muscat Beach Games site? Seems the deadline is coming like the Muscat light rail aint and yet again no one can see it. Methinks there will be a lot of Waeling going on pretty soon when they realise the accommodation is past it's build by date.

    Be interesting to see if Wail can sustain his 17k plus package then ...

  13. Long time ago somebody (very) close to Blue City told me he believed some day people would go to jail for what was happening there. Let's hope that's indeed the case, as this is clearly a massive scam. An expensive one for Oman too.

  14. Does anyone know the market price for the B1 Bonds? Thanks

  15. Out of curiosity, what is actually happening on the site at the moment.
    As far as I know the Greeks have sunk some serious money in this one, are they still in town???

  16. Oman will be remembered a a piece of s### by my and five generations forward.

    No decent person should ever go to or do business with Oman. It is a disgrace.

  17. Oman is already blacklisted at my bank... not that we will ever tell that to the Omanis.

  18. The mega project "Blue City" has officially shut down the project as of 30 March 2011. The end to the multimillion $$ project has finally come. A sad day for everyone who was ever involved from the beginning.

  19. Its really sad, but by the way has the case solved or still its a tag of war. I heard that totally about 5000 employees were removed out of their jobs. Its sad.


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