'Leveraged' takeover by Al Fahim

Regular readers will have noticed a distinct lack of updates recently. Sorry about this absence but we have been away from access to the internet and technology for the best part of two weeks (yes such a place does exist). We would very much have liked to have kept you updated with the astonishing events of the past week. However judging by my emails it looks like this saga has still got plenty of life in it.

We will provide an update on the financials of the takeover the early part of next week. However we are advised that Al Fahim is seeking to conduct a 'leveraged' takeover of the club. This means that a significant portion the club's future income will be mortgaged in order to provide the funds required to purchase the club.

Al Fahim is now the sole owner of Portsmouth and is keenly looking forward to the game against Manchester City. He has stated that, for him, this is the game he wants to win more than any other. The game sees the two UAE owned Premiership teams compete in a tie that will be the focus of the UAE sporting world. It will give Al Fahim the opportunity to host his compatriots and former employers and help re-establish his status which was hit by recent events at Hydra and Portsmouth.

For Al Fahim, it is very important that this game and and the hospitality arrangements all go well.

Deal to proceed without Al Fahim

Portsmouth FC have announced that an alternative consortium is now in the bidding for the club. Although the official statement has left the door open for Al Fahim to join with CEO Peter Storrie, this arrangement seems increasingly unlikely.

Relationships between Al Fahim and Storrie have been strained lately with Al Fahim's procrastinations a particular cause of irritation. The club needs an injection of funds for player purchases and to takeover existing funds. Al Fahim has struggled to raise the required capital and would bring little of immediate value to the deal. Al Fahim's role in the Portsmouth saga looks like it is coming to an end.

With the Transfer window set to close on 31 August, it is unlikely that any consortium will be able to deliver new player purchases in time.

Next 48 hours crucial for Portsmouth

Back on 4th August Portsmouth FC announced that additional funds were required to finance the club and that, should the takeover not take place, additional player sales would be required. With only 10 days to go until the end of the transfer window, the club now needs to take some hard decisions.

The club need revenue to finance ongoing running costs until the next tranche of Sky payments in the new year. Al Fahim's plans were to include the provision of new funds as part of the takeover. However securing new funds has proved so difficult that the new funds injection now looks far from certain. The transfer window closes on 31 August and as we recently reported, the club will need to make a decision in the next 48 hours on whether they believe the takeover will go ahead. If the club is not absolutely certain that the takeover is going to provide the new funds before 31 August, then player sales must be made to preserve the club financial position. With the Premier League requiring a week to process the 'source of funds' submission, the club are aware that they need to make a decision now.

Recent reports in the Telegraph make interesting reading and support this site's long-term contention that Al Fahim does not have the required funds to complete the takeover. The prospect of Al Fahim borrowing against future TV revenue streams is clearly a desperate move for Al Fahim. The Sky TV money for a Championship club is around £2m per season (as oppose to the circa £40m that is earned in the Premiership. Any prospective lender would take this uncertainty of income into account. With Portsmouth one of the favourites to finish in the bottom six, it is unclear whether banks will indeed see the arrangement as sound investment.

AL Fahim arrives at Fratton Park

After a turbulent week, Al Fahim arrived at Portsmouth FC for the game against Fulham. Owing to traffic congestion, he arrived just befor kick-off to see his first ever live Premiership game. His arrival was very low-key - and fans were not treated to an appearance in the centre circle

Choosing to wear and eye-catching white jacket, Al Fahim was the focus of all attention in the Directors' box, sat next to Peter Storrie.

Despite the pre-season disruption, Portsmouth had the majority of the play. However it must have been evident to Al Fahim that additional investment is required to ensure the team create more chances and improve their cutting edge up-front.

Al Fahim planning for life after Portsmouth

Al Fahim has given an 'interview' to one of the tame Arab business newspapers in an effort to improve his increasingly tarnished image.

Unlike the UK medial, newspapers in the Arab world are rarely critical and with the right contacts you are able to maintain editorial control over articles. Yesterday's piece in the Business 24-7 illustrates this point.

This issue is well illustrated by the paragraph regarding IIMSAM - no independent journalist would submit copy containing this turgid text. Al Fahim however is keen for the role of IIMSAM to be talked-up and for spurious connection to the UN to be maintained.

In the 'interview' Al Fahim is keen to start the 'rumour' that he is about to receive a £100m bonus from Hydra. We are aware of no such rumour circulating prior to this astonishing claim in this article.

Given that Al Fahim will have his image tarnished should Portsmouth, as expected, pull the plug on Al Fahim, he needs to ensure that he is still seen as a man financial might. However this £100m claim is clearly bogus.

This week, Hydra finally announced that it is scrapping all its developments, other than Hydra Village (plus two smaller tower developments). The company also made it clear that it needs additional cash to continue the projects and that this have to come from owners Royal Group. The entire Hydra venture is set to be loss-making for Royal Group and the prospect of a huge bonus to Al Fahim is inconceivable. Al Fahim was sacked as CEO and 'moved upstairs' to the Board in June.

The size of the '£100m bonus' is also fanciful. Of the 2,500 properties at Hydra Village, just 60 are considered as 60% complete - most of the rest are not even started. The sales receipts from all 2,500 properties is less than £200m. The notion that the astute Royal Group would pay a bonus of £100m bonus on a partially completed, loss-making project is simply beyond belief.

'All Change' for Al Fahim

With the the new football season commencing on Saturday, it is a good time to take stock of how much has changed since this Blog first began just 8 weeks ago. At the time we started there were a number of 'facts' about Al Fahim that were unchallenged in the media and at Portsmouth football club:

Al Fahim works for the UN as a Goodwill Ambassador
Al Fahim is successful property developer
Al Fahim is a TV star
Al Fahim is a Billionaire
Al Fahim will bring prosperity, security and success to the club

As the weeks have gone by, this Blog has unpicked the accepted mythology. This has not been easy and we have been criticised for swimming against the tide of accepted opinion. However, thanks partly to this Blog, there are few who would now accept the above picture of Al Fahim in its entirity.

We believe we have added to people's understanding of the true position and have even been able to influence some media debate. The misery of the Hydra customers is now well understood; we have seen supporters of the club debating the events at Hydra in a way that might not have been possible without this site. We have also been able to have some influence on other matters, for example; readers will have noticed that for the first time today, Bhoyrul did not refer to Al Fahim as 'Doctor' and IIMSAM is being probed for misleading claims of affiliation to the UN (no new press releases have been issued for a little while).

We have often been asked about why we started the Blog.

When the takeover at Portsmouth was first announced we saw some unsuspecting supporters declaring they 'were as happier than when the club won the FA Cup'. In part, that encouraged us to set up this Blog. We had insight into Al Fahim that the British football and sports media did not appear to have. We believed it would not end well for supporters of a fine old club and that the lessons of Hydra had been too easily dismissed.

We know readers have appreciated our updates on financial developments during the takeover. We like to think that our uniquely informed insights into this complicated matter have helped supporters of the club make sense of the seemingly bewildering events. In short, regular readers of this Blog have been better informed than those who have relied on the established media.

Perhaps the key long-lasting effect of this event full Summer has been to show how important and effective the lone voice of a Blog can be. Issues such as Al Fahim's role in the takeover have been the exclusive preserve of the news 'trinity': Local Newspapers; Nationals Newspapers and Fans Forums. However we have shown that a Blog with a consistent challenging voice can act as repository for oppositional information in a way the other news sources are not suited to. Just 8 weeks ago, there seemed no role for a loan voice in this area - however we would like to believe that this has shown that this landcsape can change.

We know that we have not always got it right (i.e. the pre-emptive pullout story) but readers have, at least, always known where they stood with the Al Fahim Blog.

If nothing else we hope we have lessened the blow of the past few weeks. How we take the Blog forward remains to be seen. The show is not quite over yet and, although it is not impossible that Al Fahim may pull the deal together, we genuinely don't believe that will happen. Even if the funds are somehow scraped together, the above picture of Al Fahim has been completely changed forever and we have played our part in that.

Uncomfortable Executives

As previously reported, the Hydra history seems to be repeating itself at Portsmouth. Al Fahim is keen to portray an image of a man who has every intention of making the deal happen. He gave a lengthy interview to this effect to tame insider Bhoyrol at arabianbusiness.com.

However this picture of a man who will walk out at Portsmouth FC to the acclaim of the crowd as the new owner of Portsmouth is causing some raised eyebrows at the club. It appears that Al Fahim had not discussed his intention to appear at Saturday's game with Peter Storrie and owner Sacha Gaydamak.

Al Fahim is determined to claim that the takeover is on track and it seems only Gaydamak can pull the plug on Al Fahim's procrastinations.

The relationship between the two men has grown frosty since Storrie's recently leaked email. As it stands, the Executive Box is set to be unusually uncomfortable.

It is looking increasingly likely that the prospect of Al Fahim coming to Fratton Park will be the tipping point of this long-running affair.

History repeating at Portsmouth?

Observers of Al Fahim may have noticed some similarities between events at Hydra and at Portsmouth FC.

At Hydra, Al Fahim quickly built a global reputation based on the apparent success of his property development company. He has a flair for PR and was able to use the media to project an image of success and personal opulence. In the UAE the media will often adopt the establishment position and will not seek to challenge the accepted position.

When the Hydra Village development began to stall, Al Fahim gave very public assurances that all was well. People who had purchased the property were given comfort by the statements. As time progressed, more assurances were given - these included target dates, percentages of completion, and further comforting statements.

The people who had invested in Hydra Village were largely concerned, but not unduly alarmed by events - after all Al Fahim was the CEO Of The Year and was the 'star' of a TV series devoted to Hydra's success. Many purchasers, who were financially and emotionally tied to the Al Fahim vision initially found it difficult to accept the true postion.

Ultimately we all know how this ended at Hydra. Purchasers trusted Al Fahim and relied on his assurances for far longer than they should. Al Fahim remained at CEO of Hydra refusing to acknowledge that there was any fundamental funding issue. He continued to confirm that the development was progressing and that investors should simply bear with him. Ultimately, owners Royalgroup had to remove him from the CEO position and installed a new man. Now, free from Al Fahim, Hydra has faced up to the true position and is beginning to resolve the problems.

When he burst onto the scheme at Portsmouth FC, despite events at Hydra, Al Fahim's image was strong and the media initially was almost entirely positive in respect of Al Fahim personally.

At Portsmouth, the takeover has continued to stall. Emotionally connected to the club, supporters understandably took time to see the position - their emotion and passionate desire for the dream vision to be reality made it understandably difficult to see the flaws. Throughout all this Al Fahim has assured fans that all is progressing on track. Each new statement,like at Hydra, pushes the perception of those emotionally involved away their belief in a negative outcome. However, with the tide of public perception changing, the reality that Al Fahim is not as originally projected is now increasingly being accepted.

Increasingly, it seems like at Hydra, only by ultimately removing Al Fahim from the picture will enable the position to be resolved.

Clearly we are now reaching the end game at Portsmouth. It is not absolutely impossible that Al Fahim will find the funds to complete the takeover (he is well connected after all). Few things are impossible and compromises and additional funding is not completely inconceivable. However, we would recommend that fans of the club view this scenario as an unexpected 'bonus', rather than with any great level of expectation.

Hydra and the Royals

In the past couple of days, some interesting information has been released regarding Hydra Properties. For anyone wanting a summary on what happened at Al Fahim's Hydra we would recommend you start with our story of 20 July.

In the two articles (See links below) Hydra, via briefings to the media, has for the first time acknowledged that additional funds are likely to be required to complete the Hydra Villages development. They have also let it be known that there is a distinct likelihood that it will be asking Royalgroup to dip into its coffers to finance the scheme completion (confirming our report of last week Cash injection needed at Hydra).

Hydra has announced that to raise funds that it will be attempting to sell the partly-commenced developments around the world. Al Fahim's strategy for Hydra was to use customer's deposits from the flagship Hydra Village development to expand into other projects. The global property slump has left Hydra holding a number of partly excavated holes in the ground with comparatively little re-sale value.

Almost all of Al Fahim's much heralded ventures will finally be scrapped to focus predominantly on the 2,500 property Hydra Village. However even with the sale of these construction sites, Hydra needs additional funding to finish this project. The company has little option but to tap owners Royalgroup for additional funds. Although the indications are that they will, it still remains to be seen if Royalgroup will stump up the additional financing. Royalgroup is owned by the UAE Royal Family - in turn, Royalgroup owns 100% of the Hydra shares.

Royalgroup's financial responsibility with Hydra is limited to the shares that it owns - it has no legal or financial requirement to assist Hydra. The Hydra brand itself is considered to be virtually worthless and there is little immediate financial incentive for the Royalgroup to pour more money into Hydra.

However it could be potentially very damaging for the image of the Royal family if they are not seen to assist in a situation where many feel they have some direct responsibility. There are also long-term implications for UAE's construction and business reputation to consider; for these reasons we do expect (and hope) that the Royalgroup will indeed come to Hydra's assistance.

The bail-out by the Royal family and the sale of Al Fahim's high-profile projects are highly embarrassing. Al Fahim, winner of the 2008 Middle East 'Visionary of the Year' simply did not see this happening.

Arabianbusiness.com

The National

Gaydamak forces the issue

The long-running saga of the takeover of Portsmouth FC by Al Fahim is moving towards a conclusion. Considerable media activity was generated by a story in the Sunday Mirror which explained the deal needed to be concluded quickly if it was going to happen at all. At first glance Sunday Mirror may look like a simple re-hash of this Blog's previous article:

Previous article

However there has clearly been a crucial development in this long-running saga and this should not pass without comment.

For Al Fahim, locked into a deal that is proving impossible to conclude, there is a real need to be able to save face - the importance of this requirement should not be underestimated.

Gaydamak has now offered a 'deadline' and we believe this will be grasped by Al Fahim as the means to extricate himself from the situation. Publically at least, the relationship can be terminated by Gaydamak on his terms. Al Fahim can insist that this was Gaydamak's decision and that the takoever had remained on track with only the details to be resolved.

Long-suffering Portsmouth fans can expect futher statements from Al Fahim and his aides which explain that "the takeover is proceeding and will soon be concluded". However, it seems that only action from Gaydamak will free Portsmouth from the 'Walter Mitty' world of Sulaiman Al Fahim.

Gaydamak's plans for Portsmouth FC

We clearly jumped the gun with our recent article stating that Al Fahim had pulled out of the takeover. Although our source has been remarkably good so far, it is clear that Al Fahim has not pulled out and is still trying to pull the deal together. With so much uncertainty and lack of clarity, it is a good time to clear up the entire position.

Yesterday's Times provides useful confirmation. It confirms that the original deal between Gaydamak and Al Fahim (agreed in May) was as follows:

Gaydamak transfers all the clubs debts (£60m)to Al Fahim. In return, the ownership of the club is transferred to Al Fahim for a token payment.

This arrangement would have allowed Gaydamak to walk away from the club and its debts and Al Fahim would become the owner. The Club debts stood at around £60m, with £36m due to Standard Bank at the end ofAugust/first week in September. The additional £24m were due to Gaydamak personally - Gaydamak receives around fifteen percent interest on much of this loan.

Gaydamak could not afford to keep subsidising the club which had been losing around £2m a month -even with a number of expensive players due to have their contract expire in June/July, Gaydamak needed to sell the club. Should the sale of the club not take place, the club were all too aware that the Standard Bank demand was unlikely to be renegotiated.

Back in May, when the takeover was announced, Al Fahim agreed in principal to takeover the club subject to Due Diligence.
At that time the debts of the club were documented in the audited accounts and were in the public domain.

As we all know, things have not worked out as Gaydamak and Al Fahim planned.

Al Fahim is certainly a man of independent wealth. How wealthy is a matter of conjecture, but all indications are that he has less than £60-£70m. Al Fahim had originally intended to buy the club with co-investors but he was not able to make this happen - the FAPL Fit and Proper Persons Test ensured that any co-investors would need to come forward. It appears that the newly strengthened FAPPT has restricted the funds available to Al Fahim.

With the takeover becoming protracted, Portsmouth had no choice but to implement 'Plan B' and sell players to ensure that it had sufficient funds to pay Standard Bank's £36m. Although these transfers generated high sale 'headline' figures, owing to the structure of the sales, the amount of up-front funds paid to the Portsmouth bank accounts was often for a lower amount. For Portsmouth, cash in the bank was the important factor.

The Season Ticket receipts and much of the Sky TV money received in August was used to keep the club running (wages were very high indeed until many contracts expired at the end of June and July). The Sky TV money is paid in two installments, in August and in January.

In addition, Portsmouth has wages to pay and, although these are significantly less than the peak of £70m per year, around £3m per month are still required to keep the club going.

It now appears that the club has the required funds to keep Standard Bank happy. However additional funds are required to pay the players wages until the next Sky TV money injection in the new year.

Gaydamak is still owed £24m by the club and, although much of it pays a handsome interest rate, Gaydamak wants Al Fahim to takeover the debt - Gaydamak wants his £24m back.

Owing to the player sales, Al Fahim now requires considerably fewer funds to take over the club from Gaydamak. Gaydamak needs only £24m and he will to be able walk away. However Al Fahim needs considerably more in his coffers than £24m as the team needs to be strengthened and future wage costs covered. To add to the complexity, the current proposed deal will only payback Gaydamak a portion of his £24m immediately - Gaydamak would not be able to walk away and would remain on the Board as a way of protecting his remaining loan.

Al Fahim still needs a co-investor or an institution willing to lend him the funds - this continues to be difficult and they are not currently in place. As a consequence, Al Fahim has not yet advised the FA Premier League of the source of the funds - this is because the source of the funds is not yet tied up. The details of the source of the funds and the overdue paperwork continues to be a sticking point and the FAPL will need at least a week to satisfy themselves that all is in order. When the paperwork had not been submitted by close of business on Tuesday, we mistakenly believed that Al Fahim's internal deadline had been passed and Al Fahim would not now be proceeding with the takeover - clearly we were wrong and Al Fahim is continuing his efforts to secure the finance.

Portsmouth FC are hopeful but unsure if the takeover will happen and need to plan for the worst-case scenario. Consequently it has announced that players will continue to be sold if the takeover does not take place. These additional funds will be required to pay players wages and run the club until the next Sky TV lifeline is received in the new year.

The crucial question is whether sufficient funds could be raised to ensure the club can continue to function and thereby ensure it does not go into administration. Our understanding is that by selling several of the key players, the club could escape administration. For Gaydamak, this will be his top priority - if the takeover does not commence as it is the only way to ensure the £24m loan is not lost.

Of course, further players sales are unlikely to be required if Al Fahim does take over the club. However this will depend on the amount of funding that he has secured.

To add to this complicated picture, the timing of the takeover also needs to be considered. The FAPL will need a minimum of a week to check the source of Al Fahim's funding and on top of that, it will take a few days to bring in any new players. If the funding paperwork has not been submitted to the FAPL by around 18 August, then Gaydamak will have push through with the sale of the remaining senior players.

Gaydamak genuinely wanted to transfer the ownership to someone who is able to move the club onwards. He had never intended to strip the club of assets in this way - sadly the ongoing delays have forced him into this position, with the prospect of more sales to come if takeover is not sealed soon.

The original deal is now less impressive for Gaydamak, as he is being asked to give the club away for nothing to Al Fahim, despite the fact that he will still have loans outstanding.

Al Fahim 'to pull out' of takeover

Following one of the most protracted takeovers in footballing history, it appears Al Fahim has now resigned himself to the fact that the Portsmouth deal will not happen.

Sources close to Al Fahim report that he has been working tirelessly to pull together sufficient funds, but it has simply not been possible to bring together the required cash. The Due Diligence process identified significantly higher Portsmouth debts than originally envisaged. In addition, the new FAPL Fit And Proper Persons requirement made it significantly more difficult to attract co-investors.

Al Fahim has been committed to the takeover and helped convince the club's creditors to defer a crucial part of the Standard Bank repayment - a debt that would have taken the club into administration two weeks ago.

As recently ago as last week, Al Fahim was still optimistic about the takeover. However his aides now advise that he has effectively decided to admit defeat.

**UPDATE**
A Press Release has been issued on 4 August which states that Al Fahim will be proceeding with the takeover. Our source has been remarkably reliable to-date (as regular readers will know) . Clearly we get things wrong but it was based on some key info - however things had obviously changed.

Cash injection needed at Hydra

Under Al Fahim, Hydra used customers' deposits from 'Hydra Villages' to expand the company and commence other developments. The onset of the global property downturn resulted in the new developments being put 'on hold'. The consequence for people who purchased property in the Hydra Villages development is well-documented - customers have paid deposits (usually around £50,000) and little has been built.

Hydra is faced by legal action from around 400 property purchasers and does not have the funds to complete the development. In an effort to generate additional cash it recently advised customers that they should provide the company with around £25,000 if their property requires a parking space. Hydra explained that the provision of a parking space was an 'extra' and would only be provided for an additional payment.

Al Fahim does not hold any shares in Hydra and all shares are held by Royalgroup, which belongs to the UAE Royal Family. If it decides to complete the development at Hydra Villages, Royalgroup will be required to dig into its coffers for the funds. The Hydra venture is set to be loss-making for Royalgroup and whether it decides to complete the development and subsidise Hydra remains to be seen. Al Fahim remains on the Board of Hydra.

Secrets of success revealed

Portsmouth FC chairman Al Fahim is the author of book "Brand Builder" which spells out, in typically swaggering manner, how he built up Hydra Properties. Although we would dispute his aides contention that it is a 'best-seller' it does offer some interesting insights into how he managed to establish the now-failing venture.

In quite brazen fashion, he explains the pitfalls of taking customers' deposits and then using the money for other ventures. Al Fahim must wish he had taken his own advice:

Brand Builder extract:

I sell all the units long before I have started building it. My investors begin with a 10% down-payment and, if I do my sums correctly, that gives me US$ 10 million.

I give that to the contractor who begins his work. After he finishes the first phase, my investors owe me another 10% - another US$ 10 million - which I happen to owe the contractor again, and effectively pass this money straight on to him.

In some ways, with this your return on equity is infinite because you don't even pay for the land. I call it IRR - infinite rate of return. This is the dream scenario, but it will not last forever because you will not always have a market with huge demand and short supply. These kind of markets are very hard to find.

The liability is with the customer in this scenario. But, as a developer, you have to be very careful and only use that money for that project. I am aware of some developers who have used the money to invest in second and third projects. That can bring you trouble. A friend of mine owns ten towers but, for three of them, he doesn't have the money to actually build them because he used it on other projects. This is rather like taking out a new credit card to pay for the one you have already used up but cannot afford the repayments on. It seems like a good idea, and is very easy to do but, ultimately, you will hit a brick wall. Or, in this case, no wall; you can't afford the bricks anymore. For pre-sale to succeed, the most important thing you need is a brand. And people have to trust in you. Simple as that. If they do not, you won't get a single pre-sale. Suffice to say, branding is something that I think we at Hydra have done exceptionally well on.