Other large projects in the Gulf ongoing or announced, fully on debt: in Saudi Arabia infrastructure projects in 2010 nearly $375bn to build schools, hospital and housing, as well as purchase of military equipment for $67bn (GCC ordered US weapons worth $123bn in total); in Qatar railway-deal with Deutsche Bahn in 2009 worth $25bn for the construction of a 40 km causeway, freight and passenger trains, to be ready by World Cup 2022 (value of total contract $79bn in connecting all GCC countries); in 2009 UAE $40bn nuclear contract to improve electricity requirements to 40GW by 2020 from 15.5GW in 2008; following to a loan of €7bn from a pool of six European banks in 2009 and a bond issue of $7bn in the same year (order-book for $27bn!) Qatar bought with “strategic long terms goals” 10% of Porsche and its 20% option in buying a VW-stake, thereafter due to the execution of the option bought 17% in VW, and in the same year sold part of VW shares raising €1.5bn; following to a bond issue in 2010 of $5bn, Qatar bought Harrods London for £1.5bn and financed part of the Barzan-gas project estimated at $10bn; in 2012 5.2% of Tiffany for $500m and 100% of Ducati motorcycle for $1.2bn.
Prestige outranks profitability – 1: Abu Dhabi & Ferrari. In 2005 the government’s vehicle Mubadala acquired 5% of Ferrari for €115m to €150m, giving to the Italian company an inflated valuation of €2,3bn to €3bn, despite a profit of only €157m on €1.29bn sales. In 2008 the government-owned Etihad Airways started to sponsor the Ferrari race team with €23m/year. Abu Dhabi started to build a $600m Ferrari theme park as a tourist attraction related to F1 races hosted in that emirate, this as part of the $40bn real estate project of Aldar, another government vehicle (44% stake together with Mubadala), which is converting a pure desert sand island (Yas Island) into a mammoth tourist destination. According to different articles reported in the media, the project has been fully financed on loans from international banks. Further to the Yas Marina F1 project, Aldar is also developing another ambitious project of $30bn, Reem Island. Making a simple approximate calculation of capex and opex for Yas Ferrari project (there are many others), every year this island should earn from tourism and F1 $2.5bn to $5bn to pay interests and maintenance, how can be this possible? The builder of the Yas Marina Formula One circuit received $10bn in total as rescue package from the Abu Dhabi government, sold assets for $4.6bn and is currently negotiating a $15bn merger with the local rival Sorouh Real Estate to afford the huge amount of debt. In Dubai government’s vehicles borrowed more than $100bn with the intention to turn the emirate into a financial and tourist hub, but irrational highly leveraged real estate projects without any real demand destabilized the fundaments of the vision to see Dubai as “the new world hub”, and the ongoing development in the region. With heavily leveraged mammoth projects like Yas Ferrari isle will Abu Dhabi be able to avoid a similar development?
Prestige outranks profitability – 2: Abu Dhabi & Football business. The GCC is lacking a coherent roadmap in the investment strategy due acquisitions or intention to buy/overpay heavily indebted football clubs. Transactions like the astonishing purchase of 90% of the technical bankrupt Manchester City Club in 2008 from Abu Dhabi for a grotesque value of €185m (not including the purchase of a new players in the same year for €135) does not make any economic sense and will never achieve the propagated ROI of 10% to 20%, given as “a must” meeting government’s vehicles in the region. The deal was advised by Amanda Staveley, founder of a fully unknown PCP Capital Partner, who also advised the failed sale of Liverpool FC to Dubai Int. Capital (Sheikh Maktoum’s investment vehicle).
ManCity has been acquired officially by the Abu Dhabi United Group for Development and Investment, apparently a private investment vehicle of Sheikh Mansour Bin Zayed Al Nahyan, a member of the Abu Dhabi ruler family (estimated net worth of $4.9bn, source Forbes), from the former Thai prime minister Shinawatra, who acquired the club only the year before for GBP21.6m. In 2008 ManCity had an unpleasant financial situation of €32.6m pre-tax loss while debt increased to €100m. In 2009 the remaining 10% has been bought for $143m, converting further increased loans of $488m into equity. Actually until today no homepage and no reliable proof is available regarding the real existence of ADUG, a supposed holding officially without offices, but with a Chairman (Khaldoun Mubarak), acting as Managing Director by Mubadala (one of the several SWF of Abu Dhabi), headed by the brother of Sheikh Mansour.
According to unconfirmed local sources, the real formal owner of ManCity seems to be not ADUG but the Abu Dhabi Fund for Development, another government vehicle with Sheikh Mansour as Chairman. Due to further purchases at moon-prices of different new players (accumulated £450m) and accumulated salaries of £360m for players, the funds spent for from Abu Dhabi this Club overpasses £1.1bn within 3 years (plus £100m as budget for the current season). Where is the profit, where is the yield? These stellar amounts are definitely not good for the football industry, are not compliant with the manifested conservatively disciplined investment policy propagated in Abu Dhabi and are inappropriate to the current financial situation of the Emirates and worldwide.
Since 2009 Italian media are reporting on the interest of Sheikh Mansour to buy also the financially troubled Milan Football Club (an eternal heavily loss making club, with debt of €400m). According to media Sheikh Mansour should be interested to acquire 40% of the fully indebted club for €500m, plus an option for the remaining 60% (deal apparently financially sustained by BNP Paribas). The transaction seems to be linked to the acquisition of the 40% stake of Fininvest in Mediaset (Italian broadcaster, market cap €1.6bn), company also owner of Milan Football Club (according to rumors ADIA should have 2% of Mediaset, further 5% seems to be controlled indirectly through Barclays and other players on behalf of Sheikh Mansour). According to media reports, the Dubai owned airline Emirates started in 2010 a sponsorship of AC Milan in a deal valued €60 for a 4-year-contract. Actually the sponsorship is in clearly contrast with the troubled financial situation of the Emirate of Dubai, which survived the crisis during the same time of the sponsorship-deal, only due to the financial support of Abu Dhabi and/or issuing further debt. Consequently this could mean that the real resource in sponsoring the heavily indebted AC Milan came from Abu Dhabi, and was/is sustained on debt.