UAE-based investment fund Essdar Capital has bought the Class A senior debt of a troubled $15 billion property project in Oman on Wednesday, in a distressed debt deal that highlights the woes of the region's property sector.

Essdar has bought about 99 percent of Blue City's class A debt via a public tender offer for $655.5 million, through its affiliate Essdar Investments Limited, it said in a statement.

"It has been a long process to get to this stage. We have been working on this for over a year," a person familiar with the deal told Reuters.   

"It was trading at a very deep discount and it was a good commercial deal," he said adding the tender offer was completed at 63 cents on the dollar.

Blue City's chief executive Richard Russel declined to comment when contacted by Reuters. The project was touted to be Oman's biggest real estate project but it stalled amid dismal sales and clashes between shareholders.   

In July last year, Essdar said it made a discounted bid for two bonds used to finance the project, after the notes were downgraded.

"Essdar has previously made attempts to buy Class A debt in Blue City. I think reports that Qatari investors were eyeing the project may have pushed them for a tender offer," said Andre Andrijanovs, corporate analyst at distressed debt firm Exotix Limited in London.   

"The current shareholders could potentially be wiped out. They would like to restructure the project and they probably still find some value in it," he said.   

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 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. - Reuters