Dubai-based asset manager Essdar Group said it has made a discounted bid for two bonds used to finance a troubled $15 billion property project in Oman after the notes were downgraded.

Credit agencies this month slashed their ratings for the two Blue City Company 1 bonds for a second time, prompting Essdar Group to launch an offer to acquire at least three-quarters of the Class A notes at knock-down prices. The bonds were originally worth $661.5 million in total.

"There is a question mark over the project and that is the reason why we are going for Class A capital structure bonds -- it is a high risk, high return strategy," said Suketu Sanghvi, senior managing director at Essdar.

"We are optimistic in the long-term for Gulf real estate. This is a big project and we are investing on a long-term basis in the belief that the returns will be good."    

Neither Blue City or its parent firm, Al Sawadi Investment and Tourism (ASIT), were available for comment.

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.

Blue City is managing the construction of the first phase of Almadina A'Zarqa, a tourism and residential project on Oman's Indian Ocean coast slated to eventually house 200,000 people.

The developer says the project will take 12 to 15 years to complete, with the first phase set to be delivered in 2012.

Essdar, which already owns an undisclosed proportion of the two bonds, has offered to pay between 50 and 71 percent of their original price. The notes mature in 2013 and 2016.

"This is an investment opportunity to purchase at a discount price," said Sanghvi. It was launched in 2006, but has fallen into difficulties as the financial crisis ravages the region's property sector.

Earlier this month, the two Blue City bonds were downgraded for a second time to near-junk status, with ratings agencies warning the value of Blue City's property sales were barely a tenth of original estimates and that the demand for residential property had fallen dramatically over the past 18 months, with no sign of recovery in the short- to medium-term.

Essdar has set a deadline of July 30 for bond holders to submit offers and the company will only go through with the purchase if it can secure 75 percent of the two notes combined, giving it increased voting rights. - Reuters