TIMELINE 30th SEPTEMBER 2012 15.05 GMT:
For months now the loyal fans of British football club Leeds United have been waiting not for news of the latest new player signing but for the details of a proposed takeover of their club by middle-east investors. Is this another “dodgy deal”?
A member of the Bahraini royal family, Sheikh Abdulrahman bin Mubarak Hamad Al Khalifa, who claimed to have “fallen in love with the club when he was 11 years old”, tried to take over Leeds United in 2003.
More recently he has been named as being involved with a consortium that has been negotiating with the football club’s owner – 80 year old Ken Bates – all summer.
Sheikh Abdulrahman is also well known in the UK for an alleged betting debt in excess of £350,000 (BHD207,230 or $565,000) which he is reputed to have owed to the British betting firm Spreadex since 2008. (See previous article: “Fake Sheikhs and Bahrain’s Fake Olympic Team” )
In the murky world of Middle East finance, it is likely that the Sheikh is still involved somewhere along the line, but his name was not mentioned when it was announced this week that an outfit called “GFH Capital” from Dubai have signed an agreement to take over the club.
Although financial details have not been released, it is thought the price the group is paying for Ken Bates shareholding is around £50 million (BHD 30,274,234 or $80.8 million dollars).
Four businessmen associated with GFH Capital attended last week’s game at the Elland Road ground, when Leeds beat Nottingham Forest 2-1, including the deputy chief executive officer of GFH Capital, David Haigh, and their chief investment officer, Salem Patel.
According to Patel, one of the their interests in the football club is that, despite having financial troubles in the past, it currently has no debt other than its ongoing lease.
GFH Capital hope to acquire the Elland Road site at some time in the future.
But their main interest is without a doubt that as from next season broadcasting rights for Premium League clubs will be a minimum of £60 million.
If Leeds, to the delight of their fans no doubt, can return to the top league, then £60 million would soon cover any interest payments that GFH Capital will probably be paying on money they will have borrowed to buy the club in the first place.
Apart from David Haigh (whose parents were from Leeds apparently and who also set up the political group “Conservatives in the Gulf” ) and Salam Patel, also present at last week’s game in Ken Bates’ director’s box was Hisham Alrayes, currently acting CEO of Gulf Finance House (GFH) of Bahrain.
GFH are 100% owners of GFH Capital, its subsidiary, and GFH’s Chairman, Esam Janahi, who was unavailable for last week’s meeting with Bates for “personal reasons”, has a long history of financial dealing across the Middle East, India and beyond.
However, red cards have been raised over the ability of GFH, which has suffered from the world economic crisis and in particular from falling land prices in Bahrain, to properly fund the Leeds deal.
Exotix, an investment firm that specialises in distressed assets, says in a research note that GFH is at “serious risk of default” and that its operations were not producing significant cash enabling it to pay future debts. “We remain wary of GFH’s ability to carry on as a going concern …” the research note continued.
According to Exotix, GFH has total debt amounting to $252 million and in May it received permission from creditors to restructure a $110 million debt that was outstanding. The National has further information, HERE:
A letter dated May 14 from the group’s auditors, KPMG, apparently says GFH “had accumulated losses of $300.69 million contractual obligations… and its current contractual obligations exceeded its liquid assets”. In other words, GFH already owes more than the value of any saleable assets that it holds.
While GFH Capital is a separate legal entity with its own funds and balance sheet, some are concerned that it plans to purchase Leeds with debt that could be put on the club’s balance sheet, an approach used in several foreign takeovers of English football clubs, notably Liverpool and Manchester United. More in the Independent, HERE:
GFH is well known in Bahrain for building the twin glass towers in the Financial Harbour district of Manama, the capital, a controversial development whose expensive office blocks remain largely empty.
According to an article published by Reuters in June 2011, “Land in the Gulf Arab region is largely controlled by a small number of ruling families who use it as a kind of currency, doling out plots to favored families and developers to forge political relationships and make money.
For it to work, the system depends on businessmen like Janahi, merchants who ostensibly operate independently from the state but whose success rests, at least in part, on political connections”.
“Our investigation shows,” continues Reuters, “The company charged investors huge markups on land deals and took out enormous up-front fees.
Such fees are legal in the Gulf but western bankers say they would be highly unusual in Europe or the United States, where the industry collects big payouts only when a project is successfully built and sold.
Documents obtained show that GFH, which has teetered on the brink of collapse for several months , also sometimes shifted investor money from one project to plug holes in another. The documents also suggest that GFH’s property projects were hurt by blurred lines between the personal interests of Janahi [the Chairman] and GFH itself. Investments and payments seemed to move back and forth between the two with very little scrutiny”.
Reuters says that “investors in GFH have been left with huge losses — $1.07 billion in 2009 and 2010 — and plenty of questions about whether the company’s myriad projects were ever going to be built in the first place”.
More recently GFH reported a profit of $4.7 million in the 2nd quarter of 2012, compared with a loss of $11.2 million in the same period a year earlier.
There are also questions around the connections of Bahrain’s dictators, the Al Khalifa family with GFH.
Documents shown to Reuters suggest that the “Ministry of Finance transferred the land on which GFH built its towers to the Bahrain Financial Harbour Company in 2003.
Bankers with knowledge of the deal say Prime Minister Sheikh Khalifa bin Salman al-Khalifa, who has governed Bahrain since independence four decades ago, granted the land in return for a 50 percent stake in the project. The other 50 percent was owned by GFH”.
The Bahrain Financial Harbour Company is chaired by Sheikh Rashid Khalifa Hamad al-Khalifa, the antique Prime Minister’s son-in-law, just another member of the ruling family that holds 50% of the Government’s cabinet positions and controls almost every other aspect of Bahrain’s political life, economy, judiciary, military and security forces and its media.
“Local bankers estimate GFH raised a total of $5 billion between 2002 and 2011 – much of that money is still locked up in unfinished projects”. You can read much more detail of on GFH’s “dodgy deals” in the Reuters special report, HERE:
For the majority of Bahrainis, the Financial Harbour and companies like GFH have come to symbolise everything they hate about the Al Khalifa Government, accusing it of corruption, lack of transparency, torture, human rights abuse and the trial of dissidents who oppose it, on false charges.
Commenting on the takeover of Leeds United by the Bahraini financial conglomerate, Gary Cooper, Chairman of the Leeds United Supporters Trust, said, “We’re hoping for investment in the team and for Leeds United to be glorious again”.
Leeds was relegated from the Premier League in 2004. With the right investment, good management and purchasing power to buy more first-class players, it stands a chance of making a significant come back.
However, given the risks with GFH, lets hope its fans are not left yet again with a club weighed down with financial problems – but this time with the added tarnish of being run and financed by leading members of one of the world’s most suppressive dictatorships.