Blue City bonds junked - appears in The National, published Abu Dhabi
I first wrote about this after spotting a couple of sentences in Project Finance magazine three weeks ago. Also see Interesting Times for Blue City. There was a lot of discussion but few verifiable facts.
The National's article confirms that
"Moody’s Investor Services downgraded about US$399 million (Dh1.47 billion) of senior notes to “Ba1” from “Baa3”. The rating is now below investment grade. An official at Moody's said the project "had entered a challenging period."Wael al Lawati, the chief executive of Omran, the government's tourism and development company, was reported to have said that sales are slowing and credit harder to come by, particularly for projects in their earliest stages, such as Blue City.
As of August, the company in charge of the first phase of development, Blue City Investments 1, had booked only $30.6m in sales, compared with a target of $101m. In an interview in September, Mr Russell told The National that sales had risen closer to $50m, but that was well below the Nov 7 target of $186m."
Mr al-Lawati did say that the Omani government was committed to all outstanding real estate projects, perhaps opening the door for an injection of government cash at some stage. That would be complicated by outstanding legal issues.
"Blue City officials said they would not disclose the project’s sales for the current period or comment on the Moody’s report."The Times of Oman published an article about a visit to Al Madina al-Zarqa (the new name for the project) from International College of Engineering and Management and German University of Technology in Oman two days ago. Marketing staff explained the purpose of the city and showed a video presentation. It wasn't clear whether students actually went on site but I noted that:
"The visit also highlighted the importance of occupational safety on site, especially in large projects such as Al Madina A’Zarqa – which has until now recorded two million man hours without injuries and over 500 hours without a loss time injury (LTI)."I did have an email from someone employed on the project yesterday who assured me that both Turkish and Greek contractors were on site, working for AECO LLC.
He bewailed, "How can any Omani expect foreign investors to act if they themselves do not believe in the project?"
Food for thought. But more than that, how do nationals connect with the declared government objective of diversifying from oil? Al Madina al-Zarqa was intended to provide stimulus to this goal, creating a micro-economy in its own right, with jobs and services.
If Omanis can't identify with that goal, why not?
Comments
newsbriefs wrote:
Ahmed Hinai wrote:
Quote: "Blue City officials said they would not disclose the project’s sales for the current period or comment on the Moody’s report."
Unquote: WHY? why are the BC officials refusing to disclose the project's sales. The new CEO was talking to the press reporters previously so often and the sales numbers were made public domain and it was indeed a very positive statement, even though the sales figures were negative. It demonstrated transparency and whatever be the "rescue plan" from now on, make them public.
Here is a sincere wish for a very prosperous and positive new year for the Blue City Project. Stakeholders, shareholders, future employees, suppliers and service providers will only be happy with the positive development of this fantastic project. God bless.
bankteller wrote:
This is not news. Just another example of rating companies protecting their own interests. World economic situation is giving chance to downgrade every company in world. After all what is risk? These are same experts who predicted $200 oil just few months ago. Same page of National also mentions downgrade of 3 Abudhabi banks! Iread previous blog on this subject and it is clear most readers do not know what junk bond means. They think junk is rubbish!
newsbriefs wrote:
"Moody's definition of its B rating follows: Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small." http://mockingbird.creighto...
"Junk Bonds - These are the bonds that pay high yields to bondholders because the borrowers don't have any other option. Their credit ratings are less than pristine, making it difficult for them to acquire capital at an inexpensive cost. Junk bonds are typically rated at 'BB'/'Ba' or less." http://www.investopedia.com...
Ibrahim wrote:
The question: “If Omanis can't identify with that goal, why not?” as raised in this article seems odd.
I believe the necessity and related declared objective of diversifying from oil is something that most Omanis fully understand and support and can easily indentify with.
If and how Al Madina A’Zarqa can provide a real stimulus to this goal is a different question. Diversifying from oil means developing other sectors of products and services that can be ‘traded’ in the international marketplace to generate income and growth for the country. The development of a complete new city doesn’t necessarily fit that bill. Apart from the tourist-elements, the plans do not seem to provide for significant development of other specific products or services in this city.
If and how Omanis can identify with a development such as Al Madina A’Zarqa is yet another question. In view of the large percentage of young people in Oman, lots of new housing units are expected to be required in the coming years. But the plans for this new city do not include any housing specifically for this important part of the population. How many ‘average’ young Omani’s can actually afford a high-end beach-front apartment or a luxury villa on a golf course?
If Al Madina A’Zarqa does not provide a clear stimulus to diversification of Oman’s economy in the long term and does not provide affordable housing for Omani’s, how are Omani’s expected to identify with this project?
newsbriefs wrote:
As I understand it, the original concept of Blue City was to be just that - a city. It was supposed to have hospitals and schools and a university. There was supposed to be mixed housing and a mixed economy, with all sorts of service jobs being made available. Following the re-design, one gets the impression that the thrust of the development is towards the high end of an anticipated market. After all, it is a prime location and sale-on-sale of high value property would have made some people a lot of money. Following the Dubai model, you could say.
You've answered yourself really. Where is the affordable housing and the jobs for Omanis? Why did the Omani company take the decision to change the spec?
Reports I've read over the last 12-18 months suggest that marketing by the ousted management seemed to be aimed at other Gulf nationals, perhaps with the idea of tempting them to buy a summer residence by the sea. Who is being targeted now to buy property at Madina al-Zarqa?
There's a broader question too. How do Omanis envisage diversification other than building and renting out property and taking on big industrial projects which require relatively few workers?
Ahmed Hinai wrote:
Somebody is talking now! It surprises me that Ahmed Janahi took this long to speak out! Here is the man who was the visionary of this project and got US$ 925 million into our country and as an Omani, I was astonished to see how the Omani partners were hoodwinking him and kept him away for such a long time. Its time justice is served. Link is self-explanatory
http://www.gulf-daily-news....
Ibrahim wrote:
But when exactly is the court ruling expected?
27th December 2008: Lengthy news item and analysis on present status of Blue City from Arabian Business in 'Bolt from the Blue', http://www.arabianbusiness....
I'd recommend reading particularly Ahmed Hinai's balanced comments on the previous post and repeat again here the reference that he quoted concerning the Bank of New York Mellon:
http://www.bankofny.com/CpT...