Blue City gets junked by Moody's

The Blue City project in Oman has had its bond rating downgraded to junk status by Moody’s Investor Services due to slow sales at the development and a “less favourable economic environment,” according to daily The National.

Moody's Investor Services downgraded about US $399 million (AED1.47 billion) of senior notes to "Ba1" from "Baa3". The rating is now below investment grade.

Blue City - or Al Madina A'Zarqa - is a $20 billion development located about 45 minutes north of Muscat. The plan is to create a new lifestyle city over the next 20 years with hotels, schools, hospitals and housing for 200,000 people.

"The fact that the sales revenue is far below expectations can jeopardise the overall project as the borrower may find it difficult to continue funding the construction in the longer term," Moody's said in a report.

Blue City is the largest of an estimated 20 major property developments rising in and around Muscat.

"This place is about the government's plan to diversify the economy away from oil," said Richard Russell, the chief executive of Blue City Investments 1, in September.

The development is also at the centre of an ownership dispute between an Omani company, Cyclone and a Bahrain-based company, AAJ Holdings, which further complicates the fate of the project, according to the ratings agencies.