x Abu Dhabi, UAETuesday 23 January 2018

Oman now owns Blue City project

The debts of the long-troubled Blue City project have been taken over by the Oman government in the latest chapter of the saga of its demise.

The fate of the troubled US$20 billion (Dh73.45bn) Blue City project is now in the hands of the Omani government after its sovereign wealth fund acquired the debts of the developer.

Onyx Investments, a company fully owned by the Oman Investment Fund (OIF), bought from Essdar Capital Managers nearly all of the class A1 and A3 notes issued by Blue City, the companies said.

Essdar, an investment company in Dubai that is part-owned by members of the Abu Dhabi and Dubai Royal Families, bought $655.5 million of the debt at a steep discount last year as the Blue City project faltered.

Essdar's original plan was to use the power designated to the class A bond holders to restructure the project. When that failed because of legal complexities, Essdar planned to foreclose on the project and sell the land. But in the end it chose to sell the debt to a third party.

Neither Essdar nor the OIF would comment on the sale price or plans for the project now that it belongs to the Omani government.

Blue City was to play a role in diversifying Oman's economy, creating over more than two decades an urban centre 45 minutes north of Muscat that would eventually house 200,000 people, adding hotels, universities, homes and attractions. But the project faced an ownership dispute, design changes, slow sales and a complex funding structure that ultimately brought it to a standstill.

Executives at BCC1, the company in charge of the first phase of construction, tried to convince bond holders last August to allow it to restructure.

In a presentation to bond holders that was obtained by The National, the company described the "difficult times" the project was facing. BCC1 spoke of an "excessive and expensive debt burden" and "onerous debt covenants" together with an "inflexible construction contract" and "general negative publicity".

The proposal included writing off part of the debt, reducing costs by 10 per cent and raising a further $150m to continue development.

Blue City still has payment obligations to contractors including Hill International, which was providing technical advice, according to disclosures on Blue City's website in the past several months.

Onyx Investments has hired the law firm Cleary Gottlieb Steen & Hamilton and the financial adviser Rothschild, according to the OIF.