ABU DHABI // The largest development in the Sultanate of Oman needs to sell 1,000 apartments and villas by Aug 7 or face the consequences from investors, a senior executive said yesterday. Blue City, a US$20 billion (Dh73.5bn) master-planned community about 45 minutes northwest of Muscat, missed its sales target in May, leading Fitch Ratings on Friday to put the company on a "rating watch negative" for a $925 million set of bonds it took out in 2006 to begin the first phase of construction.
"It's a challenge," said Richard Russell, the newly appointed chief executive of Blue City Investments 1, the company charged with completing the first phase. "It's a tight deadline, but we're confident we can make it." He said the company was required to book $101m in revenue by Aug 7. So far, the company has recorded $28m, which means that another $63m, or the initial payments from about 1,000 sales, is still needed.
To meet the deadline, he said that the company had entered into discussions with investment groups to buy units in blocks at a discounted rate, and would begin selling villas situated on what would be a golf course later this month. "The villas will probably sell overnight," he said, adding that if the company failed to meet the target, contractual stipulations would begin requiring it to sell off other assets.
Fitch Ratings, based in New York, said in a report that the potential failure to miss the target "does not, in itself, cause restrictive operating sanctions to be levied on the borrower", but it may lead to larger problems for the development. "If sales performance does not improve significantly over the coming months and quarters, the borrower may eventually struggle to continue funding the construction costs of the project," the report said.
Another problem that contributed to Fitch's wariness is an ongoing legal battle for ownership of the parent company that owns the project, Ocean Developments. That company owns Al Sawedi Investment and Tourism, which in turn owns Blue City and has the exclusive rights from the government to develop freehold property at the site. The Oman-based company, Cyclone, which owns 30 per cent of Ocean Developments, is vying with the Bahrain-based company, AAJ Holdings, for the other 70 per cent, according to published reports.
Fitch Ratings said in its report that the dispute had hurt sales because of "negative media coverage". Mr Russell, who joined the company from Al Qudra Holding on June 1 during a shake-up of Blue City's management, said that the revenue targets were missed because the company decided to redesign the masterplan of the project with Foster + Partners, which led to sales being pushed back. The next set of 800 apartments would go on sale in September, in time to meet the next sales target in November.
To keep up with the schedule for the project, the company is hiring an additional 2,000 workers, bringing the total construction force to about 9,000. The project will now have a day and a night shift, making the site an around the clock project. Mr Russell said that the added labour force would not affect the costs because it would speed up the construction schedule. "We've delayed the start of the programme, but we haven't changed the completion date," he said. "We have the same basket of work in a shorter time period. We have to squeeze the schedule a bit."
With its oil supplies drying up, Oman is following the lead of places like Dubai and Abu Dhabi by diversifying its economy. Blue City is also part of a drive to increase tourism to the country. "It will be a major economic driver for Oman," Mr Russell said. "Most of the population of Oman is 20 years old or younger. This type of project will provide employment opportunities for hundreds of thousands of people."
Blue City is designed to house a quarter of a million people and include a university, hospital, retail shops and several golf courses. The first phase, which is about five square km, will be completed in five years and include 5,000 apartments and 400 villas. No building in the development will be higher than six stories and the architecture fitted into the context of Oman's history, Mr Russell said.
"We're not building skyscrapers to the moon," he said. "They've kept the local heritage and the flavour." @Email:bhope@thenational.ae
