Articles >

The swami with the golden touch

Published by Forbes on 1988-03-07

NEMI CHANDRA GANDHI, better known as Chandra Swami Maharaj, is no ordinary mystic. Clad in his flowing white robes and wearing a look of beatitude, the swami is as adept at the financial as he is with the spiritual. He claims to have as admirers such figures as President Mobutu Sese Seko of Zaire and U.S. Representative Jim Wright. Not the least of those who believed in him was Sir Muda Hassanal Bolkiah Muizzadin Waddaulah, the sultan of Brunei, reputed to be one of the wealthiest men on earth.

In early 1985 the sultan became worried about $ 900 million he had entrusted to an Egyptian businessman, Mohamed Al-Fayed. It was the swami who had introduced the sultan to Al-Fayed. Could the swami help the sultan get back his money? From his New Delhi ashram the swami jetted first-class to Singapore for a hastily convened meeting at the Holiday Inn Royal, one of the sultan's many commercial properties. There, the Hindu swami recited Sanskrit hymns to invoke divine blessings for the Muslim sultan, but mantras weren't on his royal mind. Money was.

"The sultan told Swamiji that he had given $ 900 million to Mohamed Al-Fayed," recalls Dr. Prathap Reddy, a prominent Indian physician and a disciple of Chandra Swami. Reddy, who was present at the Singapore meeting, continues: "But now the sultan was uneasy about the whole thing. The sultan asked Swamiji how he could get his money back."

The sultan had probably read speculation in the British press about where his money had gone. Shortly before this, Al-Fayed had plunked down about #573 million to buy the House of Fraser Plc., parent company of London's Harrods department store, snatching the prize from British industrialist R. W. (Tiny) Rowland. Had Al-Fayed used the sultan's money?

From Singapore the swami flew to London. There, in an apartment at One Carlos Place, in fashionable Mayfair, on June 6 and 7, 1985, the swami met with Al-Fayed. Unknown to Al-Fayed, the swami tape-recorded the conversation. Relaxed in the presence of his old friend the swami, Al-Fayed boasted: "You ask His Majesty [the sultan], I have power of attorney -- I can do anything on earth." On the same tapes, played for a FORBES reporter in London, Al-Fayed says: "I can have $ 10 billion if I want it."

Al-Fayed has acknowledged elsewhere that he has done business for the sultan, but he and his London lawyer, Royston Webb, insist the tapes are fake. (To a FORBES reported who heard the tapes and spent several hours interviewing Al-Fayed and the swami, they sound genuine.)

How did FORBES get access to the tapes? From Tiny Rowland, who paid the swami $ 2 million for copies and another $ 3 million for a related letter.

In a weird turn of events, the swami's representative gave Al-Fayed an affidavit stating that the swami never made any recording implicating the Egyptian. But the swami's aide later told a Rowland ally that if the industrialist would persuade the Indian government to return the swami's impounded passport, the holy man would sign an affidavit, supporting whatever Rowland wanted.

The swami's flip-flop notwithstanding, Rowland says: "I will give $ 10 million to the charity of Fayed's choice if anyone proves that these tapes are forgeries." Why would Rowland pay an Indian guru $ 5 million for these documents of disputed origin? Rowland had coveted House of Fraser for many years, but the British government had consistently thwarted him on technical grounds. Rowland's reputation as a buccaneering entrepreneur had not won him favor with the British establishment.

In November 1984 Rowland owned 29.9% of House of Fraser's stock and was hoping for the government's permission to launch a full bid. Worried that he would be denied such permission, and concerned this would hurt the value of his shares, Rowland sold the stock to Al-Fayed for #138 million. Lonrho Plc., the multinational conglomerate Rowland has run since 1961, netted #70 million on the deal.

Why Al-Fayed? Because Rowland doubted the Egyptian had the resources to take over the rest of House of Fraser, or could get the government's permission to do so. Rowland: "We were confident there would be another opportunity for us, if we were cleared by the [Monopolies & Mergers] commission, to make another bid for House of Fraser." Rowland, in short, thought he was using Al-Fayed. But the Egyptian, who claims to have been eyeing Harrods for 20 years, in the end used Rowland.

Then, on Mar. 14, 1985, Al-Fayed received the government's unusually speedy permission to acquire House of Fraser (see box, p.37). It was a fait accompli. Al-Fayed was already in the act of paying another #428 million to buy the rest of Fraser. Before the government had even reached its decision Al-Fayed and his two younger brothers, Salah and Ali, owned Harrods and the rest of the retail chain. Tiny Rowland was out in the cold.

"I couldn't believe it," Al-Fayed now chortles of Rowland and House of Fraser. "He gives me a whole company on a golden plate."

Tiny Rowland is an immensely rich man, and proud. "I have been accused of being a bad loser," he says, "but I refuse to lose to a cheat."

When he tendered for House of Fraser's shares, Al-Fayed told shareholders and Britain's Department of Trade & Industry that the deal would be financed with his own funds. In fact, the purchase was financed with debt -- and with the help, charges Rowland, of an undisclosed third party's funds. To buy Lonrho's block, Al-Fayed borrowed #140 million from the Royal Bank of Scotland, securing it with personal guarantees and House of Fraser shares. To secure the rest of the stock, the Swiss Bank Corp. extended Al-Fayed a bridge loan for #430 million. Lonrho believes that Al-Fayed repaid this loan with proceeds from a #425 million syndicated loan in March 1986.

As Al-Fayed prepared this bid, he reputedly had on deposit with the Swiss Bank Corp. #55 million and $ 355 million. Those funds (since withdrawn) apparently secured the bank's loan to Al-Fayed.

Tiny Rowland is convinced those deposits came from the sultan of Brunei, who was not repaid. But Adnan Khashoggi, although a Rowland partisan, tells a different tale. Says Khashoggi, the middleman extraordinaire who first met Al-Fayed in the 1950s: "The sultan admitted to me that he got his money back from Mohamed." But Khashoggi doesn't know how much was repaid.

Mohamed Al-Fayed insists he used his own resources for the #573 million House of Fraser purchase. "I have made billions," he crows. "It's very easy to make a lot of money." He declines to document the boast. "I am," he says, "a private individual."

If Al-Fayed used his own #573 million to swing the House of Fraser deal, he made that fortune in record time. The biographical fog created by Al-Fayed's London-based public relations consultant Brian Basham has it that Al-Fayed inherited vast riches from his father, Ali. Basham says the father was involved in growing and shipping Egyptian cotton for the mills of Lancashire. Mohamed is said to have expanded the family fortune in the petrodollar-rich states of the Persian Gulf.

The story, to put it mildly, strains credulity. "Dynasty? Rubbish," says Ashraf Marwan. Marwan is Gamal Abdel Nasser's son-in-law. His office supervised Egyptian intelligence under Anwar El-Sadat. Al-Fayed's father, says Marwan, was a schoolteacher in Alexandria. "You cannot cancel out your past," Marwan says. "The man [Mohamed Al-Fayed] is a fake. He was born into a middle-class family, nothing more than that."

Adnan Khashoggi says he first met Al-Fayed in Alexandria in 1953. Mohamed Al-Fayed, 25 at the time, was distributing Singer sewing machines. Impressed, Khashoggi offered Al-Fayed a job in a furniture business that he owned in Jeddah. Al-Fayed also married Khashoggi's sister. (Their son, Dodi Fayed, is listed as a co-financier of the Oscar-winning film Chariots of Fire.) But the marriage and the friendship with Khashoggi soon came apart.

Between 1954 and 1964 Al-Fayed kept a low profile. In June 1964 he resurfaced in Port-au-Prince, Haiti, where he called himself Sheikh Al-Fayed and claimed to be the representative of the Emir of Kuwait. According to Lonrho officials, Haiti's President Francois (Papa Doc) Duvalier gave Al-Fayed control of Port-au-Prince docks and a local oil concession company, for the promise of Kuwaiti investment. According to Al-Fayed: "My idea in Haiti was to build a port complex."

No Kuwaiti money appeared, and Al-Fayed disappeared in December 1964. "My life was in danger," Al-Fayed explains. According to testimony given by Haitian and other witnesses recently to British investigators in the House of Fraser matter, Al-Fayed made off with more than $ 200,000 (no small sum in 1964). Not true, says Al-Fayed, who claims that the Haitians owed him more than $ 4 million.

From Haiti on to Dubai. Here Al-Fayed prospered. "I met the ruler of Dubai at a time when there was a lot of development there," says Al-Fayed. "The ruler was very grateful."

Grateful enough that Al-Fayed accumulated the capital to acquire House of Fraser? Mahdi Al-Tajir, a diplomat-businessman for whom Al-Fayed worked as fixer and middleman, told Lonrho he thinks it would have been impossible. Al-Fayed might have accumulated as much as #20 million, he says, but no more.

Among those amazed by the dazzling emergence of Al-Fayed was Robert O. Anderson. The former head of Atlantic Richfield recalls that Al-Fayed approached him as a commission agent on some Middle East deals (declined by Anderson). "Back in 1983, when Al-Fayed approached us, he struck me as a man of relatively modest means," says Anderson, who is now in partnership with Tiny Rowland in a New Mexico oil exploration firm called the Hondo Co. "His sudden acquisition of wealth was somewhat puzzling."

By 1979 Al-Fayed had bought the Paris Ritz (for $ 30 million), a castle in Scotland, a luxurious Park Lane apartment in London, and other ornaments. Some of the Al-Fayed's investments are sheltered by ownership in various tax havens. The Paris Ritz, for example, is owned by an Al-Fayed mailbox company on the Channel island of Jersey and, Lonrho found, is mortgaged to the Royal Bank of Scotland for FFr250 million. The castle is held by an Al-Fayed shell company in Liechtenstein. The Al-Fayeds have a 10% stake in National Bancshares Corp. of San Antonio, Tex. (1987 assets, $ 2.8 billion). But NBC of Texas lost $ 68 million last year.

What of the House of Fraser investment? Servicing the #573 million in loans taken down to swing the deal -- plus nearly #200 million of House of Fraser's own debt -- is probably costing the Al-Fayeds around #75 million a year. House of Fraser's pretax operating income in 1985 was only #48 million. In 1985-86, the last period for which the Al-Fayeds filed their accounts with the U.K.'s Companies Registrar, House of Fraser Holdings showed a net loss of #21.8 million. In 1986 House of Fraser tapped the British money market for #400 million, presumably to sustain cash flow and fund some improvements Al-Fayed has been making to Harrods.

Meanwhile, however troubled the prize, Tiny Rowland continues his ferocious campaign to wrest House of Fraser from the Egyptians. Prodded by Rowland, the U.K. Department of Trade & Industry announced in April 1987 an investigation into House of Fraser's acquisition by Al-Fayed. The investigation may be completed in April or May. If the government finds that Al-Fayed acquired the retailer improperly, it could force him to divest. That possibility, however remote, could give Tiny Rowland and others another go at House of Fraser.

"This whole problem," says Al-Fayed, "is being imposed upon me by a madman." Al-Fayed, who is sometimes seen with Prince Charles and Princess Diana and has dined at No. 10 Downing Street, is fighting back. He has commissioned investigators to gather data on people suspected of siding with Lonrho, and on journalists who write about this bizarre battle. He is suing the Observer newspaper, owned by Rowland, for libel, and he threatens to sue journalists who criticize him in print.

And what about the swami, the go-between in this mess? He was arrested in New Delhi by Central Bureau of Investigation agents last month on charges that he had bilked an Indian living in Britain. Fortified with information supplied by Tiny Rowland, the Indian government might also want to know what the swami did with the money he got from the Al-Fayeds and Rowland.

As characters in a screenplay, Tiny Rowland and Mohamed Al-Fayed might strike even the producers of James Bond thrillers as far-fetched. But in the real world of high-stakes takeover games, is anything beyond belief?

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

© Copyright 2003 - 2008, - by Fluid Design