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Oman's Blue City causing investor concerns

Blue City, a $20 billion development that Oman hopes will put it on the global property map, has fallen further behind its revenue targets following a ratings agency warning that identified financial weaknesses, the UAE daily The National reported on Wednesday.

The project has consistently fallen short of revenue targets since it began sales earlier this year because of delays caused by a master plan redesign, legal disputes over the ownership of the parent company and a management shake-up, the paper said.
In the past three months, Blue City - or Al Madina A’Zarqa as it is known in Arabic - has booked revenue of $3 million from home sales.

This takes its total revenue to $31 million far short of its Aug. 7 target of $101 million, the paper quoted Richard Russell, chief executive of Blue City Company 1, which is in charge of the first phase of construction of the project, as saying.

"We’ve had progress on collections, but there is still more to go," he said of the development, located about 45 minutes northwest of Muscat.

The shortfalls led ratings agency Fitch last month to put the project on "ratings watch negative" for $526 million worth of debt it had raised for the first phase of the project as part of a $925 million bond.

"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 report from Fitch is expected in the coming weeks, the paper said. Mr Russell said those concerns were premature and that the project would be finished on time, in 2012, the paper said.

In the coming months, more than 3,000 units, including 200 golf-course villas, will go on sale. There are also negotiations to sell large blocks of apartments to investors, which Mr Russell said “were getting very close" to completion.

Another $155m in revenue is needed to meet the next target of $186m by Nov 7, the paper said.
"We want to be on target by that date," Mr Russell said.

"In the summertime things slow down here, so we haven’t really been pushing new launches. Those are very much on track now. You’ll start to see some promotions."

The first phase of 12 phases will cover a 2.2 square km piece of beachfront and include housing for about 27,000 people.

It will also include a 27-hole golf course, three five-star hotels, schools and civic buildings like post offices and police stations.

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