A decision to drop plans to develop a Formula One theme park on the outskirts of Dubai has led to Union Properties forfeiting a US$10 million (Dh36.7m) signing on fee with Bernie Ecclestone, the chief executive of Formula One Administration.
The indebted developer said yesterday it was abandoning the Dubailand project and cancelling its multimillion dollar agreement with Formula One Administration, the company that administrates commercial rights to the motor racing event.
It means that the listed property developer had to forfeit a $10m non-refundable signing fee as well as other expenses incurred. The expenses formed a significant part of the Dh40.4m the developer was forced to write off last year as "intangible assets", Union Properties said.
"During the current year the board of directors reviewed the carrying value of this intangible asset. In their opinion, as the Formula One theme park has not yet been launched, the company decided to cancel the agreement between the two companies, thus the non-refundable signing fee was fully impaired," the company said in a statement to the Dubai bourse.
It comes as Union Properties also announced that it was seeking to refinance Dh400m of debts secured by property that it borrowed initially in 2006 and that became due on January 20.
The company added that it "is in discussions with banks to consider various options to settle debts that will include a property swap".
The Formula One World theme park was announced amid great fanfare in October 2005 at the Chinese Grand Prix in Shanghai. At the time the project was said to be worth $360m. Attractions included water rides, car-racing simulators, shops, restaurants and a copy of an F1 grid.
At the time, Mr Ecclestone said: "I'm pleased to be working with Union Properties and have every confidence that they will deliver an outstanding development, which Formula One fans the world over will enjoy".
Building work was started on land gifted earlier as a grant by the Dubai Government on the condition that Union would build an autodrome on it.
However, the project ran into difficulties during the global financial crisis, and by February 2009, after spending Dh950m, work was suspended when Union ran out of funds.
In December that year, Union hired the accountants Ernst and Young to raise the Dh1.2 billion needed to complete the half-built development, but no parties came forward to bail the project out.
"It's unfortunate that the theme park scheme didn't work out," said Ian Albert, the regional director for Colliers International Middle East, which is involved with a number of Dubai's major tourism developments.
"It would have added to the depth and variety of activities on offer in Dubai. But Abu Dhabi has replaced that demand in the UAE for a motor racing theme park with Ferrari World," he added. "The track at Dubai Autodrome is still there and usable and puts the city in good stead for when the tourism market further improves, although it is unfortunate it is not being used to its full potential."
Neither Union Properties nor Formula One Administration were immediately able to comment further.