Leeds suitor looks to have little financial clout

Having seen an Abu Dhabi billionaire's money help Manchester City become champions last year, Leeds United supporters dared to dream of something similar at Elland Road, the ground the club was forced to sell to stay afloat.

But the Dubai-based investment firm negotiating to take over Leeds, one of England's most famous clubs, appears to have little financial fire power to complete the deal, accounts of its Bahrain parent firm Gulf Finance House show.

The Bahrain company, meanwhile, has previously taken big fees from projects that rarely see completion, according to an internal document from 2010 reviewed by Reuters and verified by four former insiders.

Leeds has been in steep decline for a decade, on and off the football pitch.

Dubai-based GFH Capital is in exclusive talks to buy Leeds, which it estimates has a market value of around 52 million pounds. But GFH group had more than a quarter of a billion dollars of accumulated losses and less than $6 million in cash at the end of June.

"Words don't buy football clubs; money buys football clubs. We would expect to see evidence of GFH's ability to fulfil their claims and promises in the very near future after the takeover," said Gary Cooper, Chairman of the Leeds United Supporters' Trust, an independent fan group with more than 8,300 members.

GFH Capital Chief Executive David Haigh said his company had the resources to complete the transaction and buy new players, but gave no further details on the deal, citing a non-disclosure agreement during negotiations.

"We have the funds to buy the club, and it is our intention to buy Leeds United as quickly as possible," he said. Referring to the period when players are bought and sold, he added: "We have identified a budget for the January transfer window; that is critical for the future requirements of the team."

Leeds United declined to comment, citing the confidentiality agreement, while current owner Ken Bates, who tends to communicate with the press via public statements, told the Leeds United channel he was not responsible for the delay in closing the deal, first announced on September 27.

LOOKING INTO GFH

An internal Gulf Finance House (GFH) project assessment document of 2010 seen by Reuters and verified by four former insiders showed that by September 2009, GFH and Abu Dhabi Investment House (ADIH), run by GFH founder Esam Janahi's brother Rashad, had jointly raised $1.1 billion from investors to build an economic development zone in Mumbai.

But more than half was extracted in fees and commissions to GFH, ADIH and others before work was even begun, against the one or two per cent management fee typically paid to fund managers, who might then charge a 20 per cent performance fee on profits returned to investors. The same pattern is seen in at least five other projects, further 2010 project assessment documents show.

GFH did not return calls or respond to e-mailed questions about the company's financial condition or the current stage of development of its projects.

Other former executives and regional finance professionals say GFH Capital has a scant track record in doing deals, while its troubled parent has staved off bankruptcy again this year as in 2010, having restructured debt repayments in May and July.

GFH Capital says it can afford the investments to get the club back into the Premier League and buy back the stadium. The group's accounts present a more equivocal picture.

After losing more than a billion dollars over 2009 and 2010, the group reported a profit of just $381,000 in 2011 - less than a month's pay for a top Premier League player - after slashing staff costs and cancelling staff bonuses already accounted for in previous financial statements.

Cash and cash equivalents decreased by almost $54 million in 2011 and had fallen to $5.8 million at the end of June.

A note in this year's first-half accounts flagged accumulated losses of nearly $300 million, liquid assets insufficient to meet current obligations and material uncertainties that it said could cast doubt on the group's status as a going concern.

Frontier market investment bank Exotix estimates that GFH is losing cash at a rate of $9 million a quarter.

"We remain wary of GFH's ability to carry on as a going concern given its continued inability to produce cash from its core operations," Exotix said in a note.

The Central Bank of Bahrain declined to comment on whether GFH would breach regulatory rules if its subsidiary acquired Leeds. Earlier in October, the Turkish banking regulator rejected GFH Capital's $75 million joint bid for Turkey's Adabank, announced more than a year earlier, citing the partnership's insufficient financial strength.

Since current GFH chairman Esam Janahi founded the firm in 1999, it has announced numerous schemes in the Gulf region and elsewhere, but has completed just one major project.

That was Bahrain Financial Harbour, which was sold to Emar Bahrain, an investment vehicle used by Bahraini Prime Minister Khalifa bin Salman Al Khalifa, after it ran out of money in 2010. Bankers with knowledge of the deal said Al Khalifa initially granted the project land for 1 Bahraini dinar ($2.65) for a 50 percent stake in BFH.

A source who visited the proposed site of Tunis Financial Harbour earlier this year said sheep still graze on the land. Former executives say little or no work has been completed there or on the Libya and Mumbai projects, all multi-billion-dollar developments announced between 2007 and 2010.

GFH did not respond to emailed questions on progress at these projects. Nitan Pandey, an executive at Wadhwa Group, GFH's partner for the Mumbai project, said work might start in a year and a half after government approvals are obtained.

In the meantime, GFH shares have tumbled from a high of $12.79 in June 2008 to just 13 cents now.

"BATES OUT"

Things soured for Leeds early in the millennium as they ran up 79 million pounds in debts. They sacked manager David O'Leary in 2002 and sold their ground, training complex and top players including future England captain Rio Ferdinand, bought by Manchester United for 30 million pounds, then a British record.

In early 2005, with the club just hours from being wound up, former Chelsea owner Bates popped up with a 10 million pound takeover that cut debts to around 17 million pounds.

But relations between the owner and the fans deteriorated as the club floundered in the lower divisions. At recent home matches, hundreds of fans have waved "Bates Out" placards, while Monaco-resident Bates used his match programme notes to dismiss those demonstrating against him as "a few morons".

Bates, now 80, sold Chelsea to Russian oligarch Roman Abramovich for 17 million pounds in 2003 after buying the London club for a pound and running it for more than two decades.


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