The most bizarre (failed) take-over ever in the UK, made by supposed rich investors from the GCC: In July 09 Sulaiman Al Fahim, the former CEO of Hydra Properties in Abu Dhabi (a major developer in the UAE, at that time in great financial trouble due to high debts according to The New York Times), bought the indebted Premiere League team Portsmouth FC for £60m, including the valuation of £50m debt. Local sources suggested the possibility of the deal made on behalf of a member of the ruler family of Abu Dhabi (owner of Hydra), to whom Al Fahim was very close. Apparently because of lack of liquidity, only 43 days later Al Fahim sold 90% of the club to a Saudi Arabian businessman called Ali Al Faraj, supposedly co-owner with the Saudi government of a large Saudi chemical company, who never joined a press conference of the club, neither met media in UK or wherever in the world. It is alleged that Al Faraj financed his purchase with a £17m bridge-loan provided by the Hong Kong based rich businessman Balram Chainrai. Early 2010 Al Faraj apparently defaulted on his repayment plan to Chainrai, who took over the club and forwarded it immediately to a Russian businessman. Despite the fact that he has been often mentioned in the British media because of the takeover of Portsmouth FC, the British court discovered that he was unknown in Saudi Arabia, and that Ali Al Faraj never actually existed! According to media reports during the same time all financial assets of Al Fahim have been frozen and he sold the remaining 10% to the Portsmouth Supporters Trust for zero.
Also in 2009, the Qatari tycoon Abdullah Bin Saeed Al Thani (in the media reportedly supposed personal assets of £1.5bn), cousin of the former president of the UAE Sheikh Zayed and member of the ruler-family Al-Thani in Qatar, closed in UK the takeover of the 4th league club Nottinghamshire County, a football club close to going bankrupt with £8m debt and £5m wage bills per year. Through his own investment vehicle Munto Finance (Al Thani Investment Group), a subsidiary of Qadbak Investment, both based on the British Virgin Island, he acquired the club for £1, and hired immediately the former coach of the UK national team for a £10m-salary per year! Behind the transaction was a British convicted fraudster as managing director of Qadbak Investment, with frozen assets and years passed in jail, linked to North Korea deals with an imaginary (not existing) supposedly billion-rich Swiss Commodity Holding AG. After only five months the club was sold from the Qatari businessman to a British investor for a symbolic £1, and the former coach of the UK national team resigned as coach. The same Qadbak Investment was reported in 2009 to be behind the intention to buy from BMW 80% of the BMW F1 Team Sauber for €80m as “swiss based investment company”, deal unbelievably advised by Rothschild Bank. Qadbak Investment mentioned different names of rich influent Pakistani families as final investors of the F1 team, who all surprisingly rejected to be involved in the deal, as well as a no existing London based Bahraini bank (with reportedly the Bahrain Royals behind) as guarantor for the sale. The Swiss Sonnentag-Zeitung reported during those days that “the investor does not exist”. BMW timely understood the fraud and stopped to finalize the deal with Qadbak.
Just during the collapse of the local economy in 2008-09, the ruler family of Dubai negotiated through the own investment vehicle DIC the purchase of the Premiere League club Liverpool for supposed $800m. According to Deloitte, at that time the loss making club ($60m from $265m revenues) reported debt of $412m. The potential seller bought the club in 2007 for $287m, including $74m debt. Another investment vehicle of the ruler family of Dubai, Zabeel Investment, started negotiation to take over the Everton football club for £200m, to cover debt of £52m and to build a new stadium £78m. Last but not least other investment vehicles from Dubai were also negotiating to acquire the Charlton club for $87m, taking over debt of £20m, and the West Ham club for GBP150m plus compensation of £30m (owner bought the club in 2006 for £85m). At first sight all this does not provide any economic sense or strategic vision, necessary to improve income and visibility of the country.
Regarding the lack of transparency and no reliability of statistical data experienced in Dubai, regrettably also Abu Dhabi has challenging homework to be done. The funding of all deals is fully leveraged due to bond issues and/or syndicated loans, even if the owner behind Aabar, IPIC and Mubadala is the rich emirate of Abu Dhabi. Despite the nature of SWF vehicles to manage and invest supposedly surplus from oil & gas revenues, all transactions executed by the rich Gulf countries have been also made on debt. We can openly say that the ambitious expansion policy of all government vehicles of the GCC is the full result of debt. The increased exposure of “rich & conservative” players as Abu Dhabi or Doha to debt makes the Gulf more vulnerable to “Dubai Effects”, and created a worrisome situation by the most active lenders in the world.
The leading families of the Gulf aim to avoid a mature bubble exploding. The development of the Gulf’s economy is the result of a successful family owned business, and the outstanding capacity of very few leaders (Sheikh Zayed in Abu Dhabi definitively more than others) in executing the vision of challenging transformation from Bedouin folk to a world power. Despite secular rivalry among all Gulf countries, it is not in the interest of wealthy and influent Arab families to let the “GCC System” collapse. In order to avoid reputation loss for the whole countries, the local governments are forced to be interventionists as far the flagships corporates and financial institutions are concerned: no bank or corporate in the Gulf related to a local government will go burst. According to a study of the Group Chief Economist SABB, Mr. Sfakianakis, about 1/3 of the business in the GCC is still in the hand of the first-generation of founders, supposed to run the family business in a classic conservative stile, but in process of transition to the second generation. The half of the business in the Gulf is already in the hand of the second generation, and only 20% is managed by the third generation. The successions to the next young generation, who have studied and lived in Western countries is a very important process in the family driven economy, and represent a very important factor for the future development of the GCC, in terms of developing joint ventures with international companies, integrating external international management to the family business and going public on the stock exchange. The availability to communicate is traditionally not a cultural priority by Arab firms, the families do not see the necessity to be transparent and communicate a detailed development of the firm, it does not matter which generation is running the business. Very poor corporate governance and a weak reliability of available data is therefore the result of this policy.