An ambitious capital markets financing backed by exposure to Oman’s massive Al Madina al Zarqa (Blue City) project was roadshowed last month by Bear Stearns and Standard Chartered. The $900 million Blue City Investments transaction is unusual in that it not only incorporates construction risk but also a provision that repayment of the notes is dependent on future residential sales of the properties to be constructed.
The whole Al Madina al Zarqa project envisages the creation of a completely new city in Oman covering 34 sq km of coastal land. It is one of the first large-scale efforts by the sultanate to expand the tourism and leisure sectors and ultimately reduce dependence on the oil and gas industries. Twenty-five sq km (covering phases 1 to 10 of the project) has been transferred by the government of Oman to form part of the security package for borrowers.
The risks to investors boil down to the fact that the properties have yet to be built and therefore will not be cash generative for some time and, secondly, that ultimate demand for the properties is difficult to measure because tourism in Oman is still in its infancy.