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���������ֳ�-London-29 January 2009: ���������ֳ� has today downgraded the A3, B1, C and D class notes of Blue City Investments 1 Ltd (BCC1) as detailed below. All the classes remain on Rating Watch Negative (RWN).

USD262.5m class A3 (XS0267260346): downgraded to 'B+' from 'BBB-' (BBB minus); RWN
USD143m class B1 (XS0259701018): downgraded to 'B-' (B minus) from 'BB'; RWN
USD50.5m class C (XS0272445726): downgraded to 'B-' (B minus) from 'BB'; RWN
USD70m class D (XS0273296243): downgraded to 'B-' (B minus) from 'BB'; RWN

The transaction is a securitisation of a USD925m financing package for the development of an upmarket residential, hotel and leisure resort on the Indian Ocean coast at Al Sawadi, located 90km to the west of Muscat, the capital of The Sultanate of Oman.

���������ֳ� initially placed the notes on RWN on 4th July 2008 on the basis of poor sales performance and due to concerns relating to a legal dispute between the development's shareholders. While BCC1's new management successfully implemented operational and organisational improvements and introduced a more clearly focused marketing and sales strategy, the transaction continues to under-perform and the shareholder dispute remains unresolved. The project will also be challenged by the highly uncertain near term outlook for Oman's integrated tourism resort (ITR) market because of the global economic slowdown and the recent and rapid softening of the economy within the Gulf Cooperation Council (GCC) region.

The project has failed all of the documentation's Residential Sales Tests tested to date. Collections at the last interest payment date (IPD) on 7 November 2008 stood at USD35.0m versus the Residential Sales Test 1's target collection level of USD165.0m. Collections also fell substantially short of BCC1's revised forecast of USD49.0m.

The shortfall between actual collections and target collections as per the documentation's sales tests is largely attributable to three reasons: first, sales commenced significantly later than initially envisaged, and construction progress also suffered delays, due to changes to the master plan following the transaction's closing in November 2006; second, the actual payment plan for purchase price instalments under the project's residential sales contracts is linked to construction progress milestones, whereas the payment plan structure assumed by the documentation is linked only to a time schedule that was determined at closing and did not anticipate delays in the commencement of sales or construction; third, the Al Murjan section, which was forecast to generate sales of 800 units during 2008, proved unmarketable due to shortcomings in its design concept, forcing BCC1 to redesign this section and leaving it without any new product to sell for most of 2008.

As a result of the delayed launch of units to the market and slow sales progress to date, the project missed out on a period of strong growth in the GCC's real estate sector that the development was intended to take full advantage of. The GCC real estate boom came to an end in late 2008 and while the decline in prices and transaction volumes in Oman's ITR market is, due to its small size, more difficult to assess and quantify compared with the more transparent markets of Dubai and Abu Dhabi, the near-term outlook is negative and uncertain, undermining the confidence of both purchasers and developers. The agency understands that all the ITRs within the greater Muscat area on which construction has not commenced were temporarily put on hold by developers in late 2008.

Even if sales progress over the next two quarters is in line with BCC1's current expectations, the transaction will fail Residential Sales Test 5 on the 7 November 2009 IPD, which calls for USD455.0m of aggregate collections, triggering the immediate acceleration and mandatory repayment of all outstanding debt.

The agency understands that BCC1 is seeking to restructure the transaction via far-reaching amendments to the documents and will shortly be submitting its proposal to the issuer note and security trustee, The Bank of New York Mellon ('AA-'((AA minus))/'F1+'). BCC1 has informed the agency on an informal basis that the proposal will likely include changes to the Residential Sales Tests and Capex Tests, the launch and construction schedule of the project's different sub-sections, the payment schedule under the construction contract and the final legal maturity date of the notes in an attempt to avoid an acceleration of the debt and provide the borrower with a greater level of flexibility to respond to the changed market environment. ���������ֳ� intends to resolve its Rating Watch as more information about the proposed restructuring becomes available.

Regardless of the scope and effect of any amendments to the documentation, the agency nonetheless believes that BCC1 may face liquidity constraints and require an equity injection in the future, depending on future sales and collections volumes and the extent to which payments under the construction contract can be further back-loaded.

Following initial delays after the re-design of the masterplan, the laying of foundations of the first hotel began on 20 January 2009 and foundation works are scheduled to begin on the Al Naman apartment section on 15 February. The workers camp, with capacity for 9,000 workers, was completed in November 2008, and further enabling works on the site are ongoing.

���������ֳ� will continue to closely monitor the performance of the transaction. Updated surveillance information and the new issue report can be found on the agency's subscription website, .

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Contacts: Daniel York, London, Tel: +44 (0) 20 7417 4216; Oliver Kimche: +44 (0) 20 7417 6331.


Media Relations: Julian Dennison, London, Tel: +44 020 7682 7480, Email: julian.dennison@fitchratings.com.