Bahrain funding ability raises doubts as Leeds hopes to return to glory days

Bahrain funding ability raises doubts as Leeds hopes to return to glory days

James M. Dorsey Hürriyet Daily News
Bahrain funding ability raises doubts as Leeds hopes to return to glory days

Once boasting several stars such as Rio Ferdinand (R), Robbie Keane (2L) and Mark Viduka (C), Leeds United had an ill-advised decade and hopes that a new owner would take the club back to the English Premier League.

Concern that negotiations by the troubled English football club Leeds United for a takeover by Bahrain-based Gulf Finance House (GFH) may not give the club access to the kind of Middle Eastern funding that has significantly boosted the fortunes of rival teams Manchester City and Paris St. Germain is rising

Determined to rid themselves of current majority shareholder Ken Bates whom they blame for the club’s difficulties, fans within 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 Saint-Germain, clubs like Portsmouth, Swiss club Servette and Austria’s Admira Wacker have suffered from acquisitions by Middle Easterners whose takeovers proved to be whimsical rather than strategic.

It was not immediately clear what the purpose of GFH’s planned acquisition of Leeds is, but its close association with the embattled rulers of Bahrain suggests that it may in part be intended to shore up the island nation’s image, which was tarnished by last year’s brutal suppression of a popular uprising that resulted in the deaths of 35 people and the injury of some 2,000 others.

‘Purely political’

Some 150 athletes and sporting officials were arrested, dismissed from their jobs and charged in court for their support in protests. Many of those affected have since been reinstated to their respective team, but unrest still simmers with protests moving from the capital into the villages.

A Bahrain court this week upheld the prison sentences 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 on Oct. 2 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 the GFH in Bahrain’s financial district emerged last year as a symbol of the effort by the al-Khalifa family, part of Bahrain’s Sunni Muslim minority, to preserve what power they hold 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 in order 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 in a May 14 letter to its auditors KPMG that it “had accumulated losses of $300.69 million contractual obligations...and its current contractual obligations exceeded its liquid assets,” 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 in June and December of 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 an analyst who requested anonymity.

The Reuters investigation asserted further that Janahi “used his close ties to the al-Khalifas to build the centerpiece of the Bahrain Financial Harbor. 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.”

Huge markups

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 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 of projects were ever going to be built in the first place.

GFH told Reuters last year that it 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, Janahi and other Executive Management members do hold valuable relationships with regional governments,” the company said to Reuters, underlining the “impressive track record that GFH showed in creating opportunities and unlocking value in emerging markets.”