DUBAI UAE-based Essdar Capital, which recently bought the senior debt of Oman's troubled $15 billion Blue City project in a distressed deal, is betting on its local expertise to tap more such opportunities, a top executive said.
Essdar, 35-percent owned by the ruler of Dubai's investment company Dubai Holding, bought Blue City's $655.5 million Class A debt via a tender offer earlier in June as part of investment in its Gulf-focused distressed debt fund.
The investment remains the fund's largest so far.
"Transactions in the distressed and special situations space go through cycles in each country and as such volumes of such transactions may significantly rise in some parts of the world and may drop in other parts " Suketu Sanghvi, senior managing director of structuring and investments at Essdar told Reuters.
"...people who have good understanding of local and regional markets on legal and financial implications of enforcement, work outs, restructuring and refinancing can take some wise investment decisions in the space."
Essdar, which has an asset management and corporate finance advisory business, was presented with a restructuring plan by Blue City's borrower and the firm is in the process of reviewing the plan, Sanghvi said.
"We are in discussions with the note holders what to do with it (restructuring plan). The plan provides for the sale of a significant part of the land," he said.
An hour from Oman's capital Muscat, Blue City was touted as Oman's biggest real estate project but it stalled amid dismal sales and clashes between shareholders.
Sanghvi thinks the Middle East offers more opportunities in the distressed space for investors but age-old legal regulations and the absence of a level-playing field keeps international distressed debt managers away from the region.
"This is a market material for local investors who understand which entities need to be picked and which have to be avoided," he said.
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.
TAPPING BANK BOOKS
Another area where the firm is betting heavily is bilateral loans guaranteed by Gulf-based banks which have turned into non-performing assets amid the financial crisis.
Essdar is looking to buy these loans from the bank's books and work with the borrower in recovering the outstanding amount.
"These loans do have a recovery value, that's a play which is interesting because if we buy those loans at a particular price, then banks can book that assets sold as profits," Sanghvi said.
Sanghvi said the trick in doing such deals in the region was to be friendly rather than hostile to the borrower.
"In this market, the more friendly you are, the better it is for you. If you are an institution and you can handle such situations, then you are in safe hands," he said.
In its corporate advisory segment, the firm has previously advised the United Arab Emirates (UAE) government regarding an international credit rating and also several other quasi and semi-quasi government entities.
However, Essdar was now focusing more on its asset management business, Sanghvi said.
"We are focusing more on the asset management side. The type of transactions in corporate finance segment is changing. We are planning to look at some other funds in the future," Sanghvi said.
(Reporting by Dinesh Nair, Editing by Jason Benham and David Cowell)