March 30, 2011 / 5:43 PM / 9 years ago

UAE's Essdar exits Oman distressed debt investment

* UAE fund Essdar exits $655 mln Oman distressed debt

* Essdar to launch its second fund

By Dinesh Nair

DUBAI, March 30 (Reuters) - Essdar Capital, an Abu Dhabi-backed investment fund, fully exited its senior debt investment in the troubled Oman Blue City project, capping the completion of a rare distressed debt deal in the Gulf region.

In a statement on Wednesday, Essdar, 35-percent owned by the ruler of Dubai’s investment company Dubai Holding [DUBAHC.UL], said it sold 100 percent of its holdings of Blue City’s Class A notes to an undisclosed party.

The company did not disclose a value for the deal.

Essdar bought Blue City’s $655.5 million Class A debt via a tender offer in June last year as part of investment in its Gulf-focused distressed debt fund.[ID:nLDE6580KD]

The investment was the firm’s largest to date and was made at a price of 62-63 cents to the dollar. Essdar will now focus on launching its second fund, said Suketu Sanghvi, head of structuring and investments at the firm.

“We are happy with the deal and will be looking at our second fund very closely,” Sanghvi told Reuters.

Distressed debt investors normally buy debt of troubled companies at a discount and aim to make money by restructuring their operations and liquidating the debt at par.

An hour from Oman’s capital Muscat, the $15 billion Blue City project was touted as Oman’s biggest real estate project but it stalled amid dismal sales and clashes between shareholders.

The 20-year project, which was to be built in 12 phases, was expected to have a population of 200,000 when completed.

Blue City issued $925 million worth of bonds in November 2006 and these were divided into four categories — A, B, C and D — which are in descending order of asset security.

The two bonds were downgraded in July 2009 to near-junk status, with ratings agencies warning the value of Blue City’s property sales had fallen dramatically, with no sign of recovery in the short to medium term.

Essdar bought the debt through its affiliate Essdar Investments Limited. (Reporting by Dinesh Nair; Editing by Mike Nesbit)

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