Khoie Properties, the developer behind a proposed Dh2 billion (US$545 million) project on the man-made island of Al Marjan in Ras al Khaimah, is insolvent, its chief financial officer said yesterday. The La Hoya Bay project was sold to hundreds of investors, many from Britain, who are now pressing the Government of Ras al Khaimah to intervene because little progress has been made.
A senior member of the board of Khoie Properties is in jail after being detained by police for allegedly failing to honour a cheque written to pay for the land. "The company being insolvent means you are unable to meet your liabilities. So it is basically insolvent," said Ahmad Jazayeri, the chief financial officer of Khoie Properties. The board member has been in a Dubai prison for nearly two months after allegedly bouncing a cheque worth Dh57m, according to a senior government official.
"He is in prison for one bounced cheque worth Dh57m, but every six month there is another cheque," said Wahid Attalla, the executive director of Rakeen, the property arm of Ras al Khaimah Investment Authority (RAKIA). Mr Jazayeri also confirmed that a senior member of the board had been detained. "Honestly, he does not have enough funds to meet his obligations," Mr Jazayeri said. About 70 investors have signed a petition encouraging RAKIA, the government entity responsible for reclaiming Al Marjan Island, to take over the project and finish it.
"We are delighted that RAKIA is in negotiations with Khoie to save this exciting project and to retain the existing investors," said Ashley Merry, a spokeswoman for the La Hoya Bay Investors Group. "We still have faith in La Hoya Bay. We are grateful that they have actually taken an interest and are negotiating, whatever the outcome." Khoie Properties bought plots of land worth a total of Dh306m for the project from RAKIA and began off-plan sales to investors in 2007.
However, the company did not pay the total amountfor the land. Instead, it made a payment of Dh72m to the authorities and then provided post-dated cheques every six months to cover the outstanding amount. Mr Jazayeri said the next cheque was due in June. RAKIA and Rakeen are in talks with Khoie Properties to ascertain the developers' liabilities, and the possibility of a takeover of the project has been raised. But RAKIA is resisting this option.
"I do not think such a deal will happen," said Khater Massaad, the chief executive of RAKIA. "The problem if we take over the project is that we will have to put in cash. [Khoie Properties] collected Dh280m and only spent Dh50m in the construction of the project." Mr Jazayeri said that two-thirds of the investors' contributions had been spent on the project. "Dh72m has been spent for the land, Dh50m for piling and construction on four buildings, and around Dh68m were commissions, marketing and administration," he said, adding that the rest had been used for other purposes.
"Other investments were made in a school, and other industries like the kitchen cabinets factory and trading activities." Mr Massaad said he was concerned that the company was not due to receive any more payments until construction was complete. According to the payment plans, many investors have to contribute as little as 30 per cent of the value of their properties, with the balance due after completion.
"According to preliminary accounts we received from Khoie's accountant, they will not receive anything this year. So we cannot work on the project," Mr Massaad. Mr Jazayeri said the company had several options to obtain more cash. "Some money was invested in the school, which is now closed. It could be sold," he said. "Also, Dh700m remains to be paid by investors after completion. Some construction companies are willing to come in on a partnership basis to accept most of the payment at the end after delivery. We could start with three buildings and proceed."
According to Mr Attalla, the government is close to making a decision. "What we have is a developer who is more or less bankrupt and the Government of Ras al Khaimah, represented by RAKIA, is trying to find a solution for the sake of the investors. But it is all about how much liability there is. There is a limit to how much we can do," Mr Attalla said. Of the 800 investors in La Hoya Bay, 50 per cent are from the UK.