Prince Waleed: The Saudi dealmaker on Wall Street

Gulf Money By Matein Khalid
Filed on December 18, 2005

FORMER CNN correspondent's Riz Khan's authorised biography of Prince Al Waleed bin Talal Al Saud's spectacular career in global finance as a deal maker extraordinaire is long on breathless gossip, short on dispassionate insight.

Yet even Riz Khan's flat prose cannot camouflage the sheer energy, brilliance and vision that enabled an obscure Saudi prince to leverage a $30,000 gift from his father into the fourth largest private fortune in the world ($24 billion: Forbes).

Al Waleed was raised in pre -civil war Beirut and educated in California's Menlo College in the late 1970's.

As the son of maverick Prince Talal bin Abdel Aziz and Mona El-Solh, daughter of the assassinated Lebanese Prime Minister Riad El-Solh, he was born into two of the most illustrious political dynasties in the Arab world.

Yet, contrary to popular perception in the West, oil money or Saudi government petrodollars did not give Al Waleed an automatic passport to the pinnacles of international finance.

There are 7000 princes in the House of Saud but only a handful have positions as ministers in the Saudi Cabinet or are chairmen of major business empires.

Al Waleed's father, as the twenty first son of King Abdel Aziz, founder of the kingdom, was not high enough in the royal pecking order to ensure that his son commanded the sort of Croesus scale wealth amassed from commissions and joint ventures by some of his royal cousins in the petrodollar boom of the 1970's.

Al Waleed's business career began in a Riyadh cabin with a one million Saudi Riyal loan from Citibank plus the graduation gift from Prince Talal. He constructed an officers mess for a military barracks outside Riyadh in a venture with a South Korean contractor.

He reinvested every riyal of profit from his construction and contracting business into real estate in Riyadh in the 1980's, the source of his first private fortune.

However, Al Waleed made his mark on Saudi financial markets because he orchestrated a hostile takeover of the United Saudi Commercial Bank, the smallest and most under performing bank in the kingdom.

A hostile takeover was and is a rare event in the clubby world of GCC banking, even one engineered by a royal prince of the House of Saud economy .His control of USCB was mission critical to his ambition to act as a Saudi financier on a national scale.

Al Waleed's takeover of USCB was followed with radical surgery on the bank's business model, operations, performance benchmarks and staffing levels. The prince slashed expenses, axed hundreds of officers on the bloated payroll, and cleaned up the balance sheet of the nonperforming bank.

Years later, the bank’s shareholders reaped a windfall when Al Waleed merged USCB with SAMBA, the premier bank in the kingdom, whose management contract was held by Citibank.

The banking crisis on Wall Street in the early 1990’s was the catalyst for Prince Al Waleed's $590 million stake in Citigroup.

The American money-centre bank that had dominated global banking was on the brink of failure after huge losses in commercial real estate and Latin American sovereign loans. Citigroup CEO John Reed had almost negotiated a bailout package with the Kuwait Investment Office in Bishopsgate but the Gulf War forced the largest international bank in the US to accept Prince Al Waleed's offer of a capital injection the day the White House launched its ground troops against Iraq in 1991.

Prince Al Waleed's investment in Citigroup was at a split adjusted price of $2.4 a share (the bank now trades above $49 on the NYSE ). His $600 million stake is now worth $12 billion, almost half his current net worth. At one stage, he held more than 15 per cent of Citicorp's common stock outstanding but, after the BCCI scandal made international headlines in the summer of 1991, the Federal Reserve Board compelled him to reduce his strategic shareholding below 10 per cent.

With the possible exception of the Bahrain investment bank Investcorp and the Olayan family investment office in Saudi Arabia, Al Waleed has been the most successful, easily the most high profile Arab investor on Wall Street.

His modus operandi,as illustrated by his investment in Citicorp, is to buy strategic stakes in global brand name companies during times of distress on the stock exchange and to work closely with management to engineer a turnaround.

Al Waleed's Citigroup stake in 1991 is quite possibly the biggest , most successful investment ever made by an Arab investor on Wall Street in our time.

Apart from Citigroup, Al Waleed holds strategic stakes in the Four Seasons Hotels, Fairmont Hotels, News Corporation. AOL Times Warner, Walt Disney, Canary Wharf, Apple and Motorola. It is not usual to see the CEO's of global companies having lunch with their strategic shareholder in the George V hotel in Paris or on the sundeck of his yatch moored off the Croisette in Cannes in the South of France.

His Kingdom Holdings Company is also one of the leading investors in Saudi Arabia and the Middle East, with such leading brands as the Rotana music channel, the Savola food empire, SAMBA Financial and National Industrialization Company. His global investment strategy is based on the premise that global brands can offer exceptional long term investment value as long as the timing of an entry price is well calculated. This means that the successful investor should wait for the stock market to temporarily cheapen the price way below value, the catalyst for a buy decision. Naturally, not every Cinderella in the stock market will be kissed by Prince Charming.

In in the real world, ugly stepsisters quite often show up to the fairy tale ball. Al Waleed took a hit with his investments in Eurodisney and Silicon Valley dotcoms. His strategy is not merely "contrarian investing” but a patient, disciplined long-term dedication to global brand value extraction. This is the formula that enabled Al Waleed bin Talal to emerge as the most successful Arab financial dealmaker on Wall Street in our generation. Patience, discipline, value, research, risk management, strategy, long-term perspective - these are virtues that those who confuse stock exchanges with casinos in the GCC would do well to emulate from his track record in global finance.

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