The developer of a long-delayed US$8.8 billion (Dh32.32bn) project in the heart of Mecca has signed a deal to start construction on a large portion of the development.
Jabal Omar Developmentsays it has it awarded a 3.4 billion riyal (Dh3.3bn) contract to Nesma & Partners Construction for a phase of the development to be built near the Grand Mosque. Nesma was given a 24-month contract to start work on a section of the project overlooking Ibrahim al Khalil Street, according to a statement Jabal Omar issued to the Saudi Arabia bourse yesterday.
Plans for the overall development call for at least three luxury hotels, hundreds of shops and air-conditioned prayer facilities for 100,000 worshippers, as well as housing for 87,000 people. The first phase is expected to include nine towers along Ibrahim al Khalil and Umm al Qura streets, overlooking the Grand Mosque.
The project is considered a key element in the redevelopment of Mecca, which analysts say has been long overdue for an upgrade in services. Six hundred properties have reportedly been organised for Jabal Omar's redevelopment project.
"By consolidating land holdings, they now have the opportunity to develop large-scale tourist facilities," said John Harris, the head of the Saudi Arabia office for Jones Lang LaSalle.
Jabal Omar was formed in 2006 by the Makkah Construction and Development Company to undertake the project. The company raised $537 million in 2007 by offering a 30 per cent stake in the company in an initial public offering. Initial construction of 15 towers started in September 2008.
But the company struggled to raise financing to fund the bulk of the project because of global credit tightening and a drop in oil prices.
The company's prospects were also hampered by fallout from the troubles at Saad Group and Ahmad Hamad Al Gosaibi and Brothers, which left Saudi Arabia exposed to billions of dollars of losses.
In 2008, Jabal Omar hired Jadwa Investment to raise funds but replaced the company in April with Al Rajhi Financial Services, a subsidiary of Al Rajhi Bank, the world's largest Islamic lender.
"The new developments proposed for Mecca are of such a scale it takes a long time to put financing together," Mr Harris said.
But analysts say demand for new facilities in Mecca is high.
The number of pilgrims is expected to double within the next decade, according to a Jones Lang LaSalle study, which also found that only 10 per cent of the hotels in Mecca met international standards. In October, Jabal Omar announced 1.35 billion riyal of bridge loans from five banks, as well as plans to issue sukuk worth 3bn riyals.
In a statement issued when the funding was announced, Abdul Rahman bin Abdul Qadir Faqih, the Jabal Omar chairman, said: "We are fully committed to completing this mega-project, which serves visitors to the [Masjid al] Haram, a landmark so precious to the hearts of all Muslims around the world."
On Sunday, the company reported an 11.3m riyal loss for the fourth quarter compared with a 1.5m riyal loss in the same quarter last year. For the nine months ending on September 30, the company said it lost 25.7m riyals compared with a loss of 21.53m riyals for the same period last year.