Questions raised about GHF’s ability to fund Leeds United
By James M.
Dorsey
Concern is
rising that troubled English soccer club Leeds United’s negotiations for a
takeover by Bahrain-based Gulf Finance House (GFH) may not give it access to
the kind of Middle Eastern funding that has significantly boosted the fortunes
of the likes of Manchester City and Paris St. Germain.
Determined
to rid themselves of current majority shareholder Ken Bates whom they blame for
the club’s difficulties, fans organized in the Leeds United Supporters Trust
have welcomed GFH’s bid for the team despite Europe’s mixed experience with
Middle Eastern investors.
Unlike
Manchester City and Paris St. Germain which have benefitted significantly from
investment by government-backed Gulf funds or key members of royal families,
clubs like Portsmouth SC, Swiss Super League club Servette FC and Austria’s
Admira Wacker have suffered from and at times seen their problems aggravated by
acquisitions by Middle Easterners whose takeovers proved to be whimsical rather
than strategic.
It was not
immediately clear what the purpose is of GFH’s planned acquisition of Leeds,
but its close association with the embattled rulers of Bahrain suggests that it
may be in part intended to shore up the island nation’s image tarnished by last
year’s brutal suppression of a popular uprising in which 35 people were killed
and some 2,000 injured.
Some 150
athletes and sports officials, including three national soccer team players,
were arrested, dismissed from their jobs and in some cases tortured and charged
in court for their support of the protests. Many of those affected have since
been reinstated, but unrest is simmering with protests having moved from the
capital into the villages in what many believe is a second uprising in waiting.
A Bahrain
court this week upheld the sentencing to prison of nine medics accused of illegal
assembly and concealing weapons. The court rejected the medics’ assertion that
they were simply fulfilling their duty to treat the injured irrespective of
their political views. Five of the medics were arrested at dawn on Tuesday
morning with the wife of one of them calling the verdict “purely political.”
David
Haigh, deputy chief executive officer of GFH Capital, the wholly owned GFH
subsidiary that is negotiating the acquisition, argued in a statement that “from
a business perspective, ownership of an English football club, notably Leeds
United, is a great opportunity if the right strategies are in place.”
Twin towers
built by GFH in Bahrain’s financial district emerged last year as a symbol of
the effort by Bahrain’s minority Sunni Muslim Al Khalifa family to preserve its
power in a predominantly Shiite Muslim nation and protect the vast wealth of
the country's economic elite. GFH is a listed investment company run by
Bahraini businessman Esam Janahi.
In an
investigative report on GFH, Reuters news agency noted last year that “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.”
GFH’s track
record as a financial institution also raises concern. The investment house
reported that it "had accumulated losses of $300.69 million contractual
obligations... and its current contractual obligations exceeded its liquid
assets", in a May 14 letter to its auditors, KPMG, according to British
newspaper The Independent.
GFH has
reported an approximate loss of $300 million in each of its half year financial
reports for the periods ending June and December 2011 and June 2012, according
to statements published on its website.
“GFH has been
on the brink of collapse for years, kept alive by Janahi's relationship with
the prime minister and the Bahrain central bank's fear of loss of face. They've
announced many deals that never came through,” said a Gulf analyst who
requested anonymity.
The Reuters
investigation conducted by Frederik Richter, who was subsequently forced to
leave Bahrain, and Martin de SaPinto asserted further that Mr. Janahi “used his
close ties to the al-Khalifas to build the centerpiece of the Bahrain Financial
Harbour. He could then point to the development as a model to help secure
further land deals from rulers and governments across the Middle East and as
far away as India, convincing investors to put up billions of dollars for
property projects, most of which have never been built.”
The report
said that GFH had charged investors huge markups on land deals and taken out
enormous up-front fees even before a project had been successfully built and
sold. Reuters quoted documents it had obtained as showing that GHF “sometimes
shifted investor money from one project to plug holes in another” and that its
“property projects were hurt by blurred lines between the personal interests of
Janahi and GFH itself. Investments and payments seemed to move back and forth
between the two with very little scrutiny.” Reuters said that Investors in GFH
had been left with huge losses -- $1.07 billion in 2009 and 2010 -- and questions
about whether the company's myriad projects were ever going to be built in the
first place.
GFH did not
respond to several requests for comment but told Reuters last year that it had
had 10 successful years before the financial crisis hit investment firms around
the globe. It said it was the first firm to partner with governments in the
region on real estate and infrastructure projects.
"Indeed,
Esam Janahi and other Executive Management members do hold valuable
relationships with regional governments which were a direct result of
spearheading GFH," the company said in an email quoted by Reuters. The
email went on to point out the "impressive track record that GFH showed in
creating opportunities and unlocking value in emerging markets".
James M. Dorsey is a senior fellow at the S. Rajaratnam
School of International Studies at Nanyang Technological University in Singapore
and the author of the blog, The Turbulent World of Middle East
Soccer.
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