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Millions in Royal Debt Has Pakistan in Predicament

Finances: Sums owed by Emirates' ruling family hobble the Asian nation's bid to sell a state-owned bank at a fair price, as part of economic reforms.

April 28, 2002|PAUL WATSON | TIMES STAFF WRITER

KARACHI, Pakistan — When a rich Persian Gulf sheik with a bad heart and a reputation for heavy drinking died two years ago, he saddled a state-owned bank in Pakistan with a $227-million debt he had refused to pay for more than two decades.

In a separate case, an Arab princess and the Emirate of Sharjah stiffed the same bank, United Bank Ltd., for $87 million, Pakistani President Pervez Musharraf said in a letter to the ruler of the United Arab Emirates.

As a result, impoverished Pakistan has had to go begging to the wealthy Emirates to cover $314 million in royal debts. Confidential bank and government documents, including Musharraf's letter, make it clear that the loans are hurting Pakistan's efforts to sell its fourth-largest bank at a fair price, as part of an economic reform package.

The worlds of international banking and main emirate Abu Dhabi's royal family are secretive, so many details about the loans and the borrowers are hard to come by. The matter is so sensitive that officials in both countries refuse to speak on the record about it.

But the leaked documents shed some light on difficulties and internal divisions in Pakistan stemming from loans made for "prestigious residential developments" in the late 1970s.

Musharraf, already struggling with Islamic extremism and political opposition, is trying to meet a May 31 deadline to sell United Bank and other state-run companies to gain loans from the International Monetary Fund that Pakistan needs to recover from years of sleaze and turmoil.

However, the leading candidate to buy the bank is from Abu Dhabi's ruling family--as was the man who never paid the $227 million--raising concerns about a possible conflict of interest.

Sheik Mohammed ibn Khalid al Nuhayyan died about two years ago in his mid-50s. An Emirates banking source said that Mohammed had a reputation as a heavy drinker and a bad risk and that he eventually was blacklisted by his own country's central bank.

He was the nephew of Sheik Zayed ibn Sultan al Nuhayyan, who has governed the oil-rich Emirates since they gained independence from Britain in 1971. In 1998, the last time that Zayed made it onto Forbes magazine's list of top 10 billionaires, he ranked seventh, with an estimated worth of $15 billion.

The Nuhayyan family is also associated in banking circles with the Bank of Credit and Commerce International, of which they were the principal shareholders. BCCI laundered millions of dollars for Western intelligence agencies, arms and drug traffickers, and terrorists before collapsing in 1991.

Conflict of Interest Seen

One of Zayed's cousins, Sheik Nuhayyan Mabarak al Nuhayyan, is chairman of BCCI's Karachi-based successor, Bank Al Falah, and heads the Abu Dhabi Group that is considered the front-runner among three bidders for United Bank's $2.7 billion in assets and 1,370 branches. His group is also one of the top two contenders for the state-owned Pakistan Telecommunications Co. Ltd.

A senior United Bank executive, international division chief Aman A. Siddiqui, expressed concern in an Oct. 23 memo about a possible conflict of interest.

Because the Abu Dhabi consortium is headed by a cousin of the Emirates' ruler, "it is likely they will exert influence against resolution of the matter, as it gives them a huge pricing advantage if the matter remains on hold," Siddiqui wrote to United Bank President Amar Zafar Khan.

Siddiqui told Khan in a separate memo that an intermediary for the Emirates, former Ambassador to Pakistan Mohammad Atiq al Qamzi, would advise his clients to buy the bank without settling the debts.

Musharraf put his prestige on the line by pleading for a settlement. In a March 2001 letter, he offered prayers for Zayed's recovery from surgery, and then asked his help in getting the $314 million back.

"Efforts to secure payment of these loans have failed over all these years, primarily due to [the] inability of the bank to secure cooperation from the borrowers and the desire of [United Bank] not to create an embarrassing situation in its host country," Musharraf wrote.

"However, repayment of the two loans has become highly urgent for Pakistan because they represent a major drain on the bank's resources and thereby on the vulnerable economy," he added. If the loans were not repaid, he said, Pakistan would have to delay privatization of the bank or sell it at a big discount.

"The failure to recover the loans would also have an impact on the financial arrangements being currently sought from the International Monetary Fund and the World Bank by Pakistan," Musharraf wrote.

The Emirates' ruler did not respond, a serious loss of face for Musharraf. Ibrahim al Abed, an Emirates government spokesman, said the nation considered the debts a personal matter that had nothing to do with the government.

Other Pakistani officials have minimized the dispute or sought to write off the debts.

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