Dossier: Prince Al-Walid bin Talal Saudi billionaire

Until the one month anniversary of the September 11 attacks against the United States, Saudi Prince Al-Walid bin Talal bin Abdulaziz was not recognizable to most people outside of the Middle East and international business circles. Although he was then listed by Forbes magazine as the six richest person in the world (he is now eleventh) and had invested the bulk of his estimated $20 billion fortune in high-profile American corporations, until October 11, 2001 Al-Walid remained what Business Week once called "the most important financial kingpin that you've never heard of."¹ His gift of a $10 million check to the victims of the World Trade Center disaster on that day would have made him a celebrity in the United States, had it not been followed by a statement so offensive to most Americans that New York Mayor Rudolph Giuliani promptly returned it. The intense media frenzy which resulted was quickly superceded by the war in Afghanistan, however, and the prince soon became a mere antagonist in Giuliani's mythic rise to national fame.

In the Middle East, however, the confrontation with Giuliani helped transform the prince from a rich, but politically marginal, member of the Saudi royal family into one of the most respected public figures in the Arab world. This fame may eventually translate into political power. Once dubbed the "rogue prince" by the London Times for his advocacy of political reforms in of Saudi Arabia,² Al-Walid is now considered by some to be the strongest political contender among the third generation Saudi royals who will one day inherit power from the aging sons of the kingdom's founder, Abdulaziz bin Saud

In the meantime, the prince has begun preparing for a more immediate power play - not in Riyadh, but in Beirut. Al-Walid, whose mother is Lebanese, is believed to be under consideration by the Syrians to succeed Lebanese Prime Minister Rafiq Hariri - an ambition that he has repeatedly refused to disclaim.

Background

Al-Walid was born in 1957 to Prince Talal bin Abdulaziz, one of the many sons of the late King Abdulaziz, and Mona al-Solh, the daughter of Lebanon's first post-independence prime minister, Riad al-Solh.

During the 1950s, Al-Walid's father emerged as the leader of a group of liberal princes who championed political reform in the Kingdom, initially calling itself "Young Najd" (after the central region of Saudi Arabia where the Al-Saud family originated) and later known as the "Free Princes" (designed to imply a parallel with the Free Officers of Gamal abd al-Nasser in Egypt). By the end of the decade, the Arab media was rife with reports of a new constitution drafted by Prince Talal which would have strengthened the power of the cabinet vis-a-vis the king and established a partially-elected shura (consultative) council. However, King Saud rejected the proposals and the Saudi clerical establishment issued a fatwa condemning them as a violation of Islamic law. In 1961, the government withdrew Talal's passport and began attempting to silence him, prompting him to leave for exile in Egypt the following year. During his stay in Cairo, he declared himself a socialist and broadcast anti-Saudi radio propaganda, earning the nickname "the Red Prince."

Talal reconciled with the royal family two years later and was allowed to return to country, apparently on the condition that he not express his political views. Over the next two decades, he became very wealthy from construction contracts and real estate trading. Although he was later appointed a special envoy for UNICEF (prompting the Saudi media gave him a new nickname - the "children's prince"), he remained squarely outside of the political establishment.

Al-Walid's parents divorced early in his life and he spent most of his childhood in Lebanon before returning to Saudi Arabia in 1968 at the urging of his father to attend military school. Although he lived in comfort, his lifestyle was not as privileged as those of other young princes whose fathers were closer to the line of succession. This experience of relative deprivation would become the apparent inspiration underlying his aggressive, life-long pursuit of wealth.

In 1976, Al-Walid moved to San Francisco to attend Menlo College, where he studied business and distinguished himself as an ambitious, straight A student. "He was the hardest worker I've ever seen," his academic advisor later recalled.³ After graduation, he returned to Saudi Arabia, anxious to take part in the massive, oil-driven economic boom sweeping through his country.

Building the Foundations

Al-Walid got his start in business much like other well-connected Saudis - by becoming an agent for foreign companies operating in the kingdom. The early 1980s witnessed a massive construction boom and skyrocketing import sector, fueled by high oil prices. Under Saudi law, foreign businesses are required to have a local sponsor who earns a 5% commission from any contract (in practice, though, companies have often been obliged to pay fees of 30% or more to influential middlemen in order to land lucrative contacts). In 1980, the prince mortgaged a mansion given to him by his father in order to start a company called Kingdom Establishment. He soon landed his first deal - an $8 million contract by a firm in South Korea to build a bachelor's club at a military academy near the Saudi capital.

Unlike most Saudi royals, who were content merely to represent international corporations and skim money off their contracts, Al-Walid began to pursue joint ventures with foreign companies. It has been widely rumored that many of his construction deals were lucrative military contracts. Within a few years, he was earning up to $50 million annually in profits. Most of this he re-invested in real estate in and around Riyadh which rapidly appreciated in subsequent years. In the mid-1980s he departed again for the United States to pursue a Masters Degree at Syracuse University.

After his return to Saudi Arabia, Al-Walid focused next on the country's poorly-managed banking sector. In 1986, he shocked the Saudi establishment by announcing that he had accumulated a controlling stake in the United Saudi Commercial Bank (USCB), which had been unprofitable for several years. Initially shocked by this unprecedented hostile corporate takeover, Saudi officials soon saw the silver lining. After cutting the bank's staff by over 50% and introducing management incentives (standard fare in the West, but virtually unknown at the time in Saudi Arabia), the prince returned USCB to profitability in just two years.

In addition to this growing new source of revenue, Al-Walid's takeover of USCB provided him with an even more valuable - and, in Saudi Arabia, extremely scarce - commodity: financial intelligence. "I got to know the strengths and weaknesses of local companies," he once boasted.⁴ Over the next several years, his business empire expanded to include the kingdom's largest supermarket chain and branched into the fast food, livestock and hospital management sectors.

Expanding the Empire

Having established a strong foundation for his growing financial empire on Saudi soil, in the late 1980s Al-Walid began to extend his investment horizon beyond the Arabian peninsula. Following his mantra that "banks are the eyes of an economy," in 1987 his financial team began intensively studying ailing money-center banks in the United States. By 1989, he had spent $250 million snapping up shares of Chase Manhattan, Citicorp, Manufacturers Hanover, and Chemical Bank.

The following year, he decided to sell his stakes in three of the banks and pour everything into Citicorp - acquiring a 4.9% stake through common stock purchases. On paper, Citicorp was the worst-performing of the three, but Al-Walid believed that its international brand presence gave it the most potential for future growth. In 1991, amid widespread fears that the bank would fail, the prince invested another $590 million in return for convertible preferred stock that raised his stake in Citicorp to over 14%.

His timing could not have been better. Two weeks after making the deal, a consortium of international investors poured another $600 million into the bank, ending its capital crisis. By April 1998, after Citicorp announced plans to merge with Travelers, the value of Al-Walid's stake in the company (now called Citigroup) had climbed to $7.6 billion.

Al-Walid's investment in Citigroup (later reduced to just under 10% in compliance with Federal Reserve regulations) was followed over the next decade by major acquisitions in other ailing blue-chip American and European companies. In 1994, for example, he made headlines by purchasing a 24% stake in the Eurodisney theme park outside of Paris for $500 million. In 1995, he bought a 50% stake in New York's Plaza Hotel for $160 million and a 10% stake of London's Canary Wharf. In March 1997, he acquired a 5% stake in Apple after shares had fallen from $50 in mid-1995 to $18. In 2000, he shifted to investments in high tech companies, such as Compaq, Kodak, Ebay, Priceline.com, Amazon.com, and Worldcom.

Unsolved Mysteries

Although Time magazine once hailed the prince as an "Arabian Warren Buffett," there is a striking difference between the investment practices of Al-Walid and his American counterpart. While the prince has displayed remarkable acumen in deciding when to buy stocks, financial experts say he has demonstrated little knack for knowing when to sell. In fact, he has rarely parted with any major investments. As a result, while the returns on his Citigroup shares have been quite exceptional, the performance of his subsequent investments have been unimpressive. "If the prince were an American mutual fund," The Economist concluded in 1999, "his performance would rank in the bottom half of the industry."⁵

The prince attributes his reluctance to drop unprofitable investments, such as his Eurodisney stake, to sentimentalism. "I fall in love, basically, with my companies," he remarked in an interview last year, "because I have no wife."⁶ However, his practice of bailing out high-profile American corporations and staying the course, irrespective of their subsequent profitability, has raised suspicions that he is motivated less by profit margins than by the desire to curry favor with the US government. During the 1980s, after all, he was a major financial supporter of the mujahidin fighting the Soviet occupation of Afghanistan and traveled secretly to their training camps in Peshawar.⁷ His decision to bail out Citigroup - at a time when the bank had exhausted every feasible means of raising capital - spawned rumors that he acted at the behest of American officials.

Some have suggested that the prince may be acting as a front for a larger consortium of senior-level Saudi princes anxious to acquire a hefty stake in the American economy. A 1999 report on Al-Walid's finances by The Economist concluded that the Saudi prince "has not earned enough from his investments" to pay for his massive stock purchases in the 1990s and may "have a valuable and unrevealed source of income."⁸ High-ranking members of the Saudi royal family would not, for political reasons, be able to openly undertake the kind of investments that Al-Walid has pursued - several chief executives of companies in which he has a major stake (e.g. Disney, Donna Karan International) as well as some of his business partners (e.g. real estate developer Paul Reichmann), have been Jewish.

However, the notion that he is fronting for other members of the royal family does not easily square with reports of disputes between Al-Walid and the Saudi establishment that have surfaced in recent years. Several members of the royal family openly criticized him in 1997 when the ART satellite television station, of which he is the largest shareholder, broadcast the "Miss Arab of Israel" contest in Haifa. A 1996 partnership with American pop star Michael Jackson to establish Kingdom Entertainment led to similar rebukes.

Tensions between Al-Walid and the ruling elite in Riyadh escalated in 1998, when Prince Talal broke his long silence and spoke openly about the need for governmental reforms, interpreted by some as a ploy to advance his son's political ambitions. In April, Talal triggered an uproar when he said in an interview that a future power struggle could erupt in Saudi Arabia unless a clear mechanism governing the succession is established. The Basic Statute of Government decreed by King Fahd in 1993, he said, did not clarify whether the successor is to be chosen by the king himself or the royal family as a whole (as has traditionally been the case). He also asserted that Prince Sultan bin Abdulaziz should not automatically be named crown prince when Abdullah becomes king, despite occupying the number three position of second deputy prime minister in the Saudi government.

Such statements appeared to indicate that Al-Walid and his father were taking sides in what was then regarded as a looming succession struggle between Prince Sultan, who is a full brother of ailing King Fahd and five other senior princes (collectively know as the "Sudairi Seven"), and Crown Prince Abdullah, who had a different mother. Fearing that Talal was backing Abdullah, Sultan attempted to impose a blackout in the Saudi media on his activities. However, Abdullah overruled him and brought Talal with him on several high profile trips abroad as a sign of support.

In June 1999, Talal publicly called for Saudi Arabia to "find a smooth way to pass the monarchy to the next generation, or face a power struggle after the era of old royals passes."⁹ In an interview with Egyptian state television later that month, he declared his support for an Egyptian candidate, Ismail Serageddin, to succeed Federico Mayor of Spain as director general of UNESCO, despite the fact that the Saudi government was actively pushing its own candidate, Ghazi al-Qusaybi.

After the interview, apparent tensions between the two Saudi princes and the ruling "Sudairi Seven" were reflected in the reports of Egyptian newspapers receiving subsidies from one side other. On June 22, the daily Al-Arabi published a paid advertisement calling on King Fahd to intervene and request that Talal desist from making "bizarre" declarations, while the daily Al-Noor published two paid advertisements criticizing Al-Walid for investing most of his fortune outside of the Arab world. Supporters of Talal, such as Mustafa Bakri, the editor of Al-Usbou', alleged that the Saudi government had allocated a budget of $10 million to discredit Talal and his son in the Arab and international media.

Last year, Al-Walid began to publicly advocate his father's views. In a November 28 interview with the New York Times, he called for the introduction of elections to Saudi Arabia's 120-member advisory council, "the faster the better," as a way of reducing domestic discontent in the Kingdom. He also broke another taboo by calling for an end to the system of allowances that provide even peripheral members of the royal family with thousands of dollars per month from state coffers. This prompted one influential prince, Sultan bin Turki bin Abdul Aziz, to complain that Al-Walid's remarks were made "in the interests of the West and parties opposing Saudi policies."¹⁰

Sensitive to accusations that his investment portfolio and political statements reflect a pro-Western bias, Al-Walid has been careful to shore up his reputation among the broader Saudi and Arab public. His donations to religious institutions regularly make headlines. In December 2001, he announced that he would build 50 new mosques in Saudi Arabia, where he has previously funded the construction of 39 mosques. In May, he donated $4 million to the Grand Mosque project in Carthage, Tunisia and $2 million to a mosque in Lebanon.

The prince, who claims to give away $100 million annually to charity every year, has also donated extensively to secular causes. During a live telethon on April 11, he pledged $27 million to help rebuild Palestinian infrastructure and supply vehicles and clothing. In February, he donated $2,200 to each family of the 373 victims of a train fire near Cairo, dwarfing the Egyptian government's compensation fund. In March, he donated $1 million to an Arab League fund intended to repair Western perceptions of Islam following the September 11 attacks. In June, the prince offered to rebuild the Syrian village of Zeyzon, which was destroyed weeks earlier when a dam burst, killing 22 people and leaving thousands homeless. Syrian officials quickly declared that the village will be renamed "Prince Al-Walid bin Talal."

The fiasco at ground zero last October demonstrated that building support from both the United States and the Arab street is a difficult circle to square. During his visit to the site of the World Trade Center disaster on October 11, Al-Walid called the attack a "a tremendous crime" and presented New York Mayor Rudolph Giuliani with a $10 million donation to a September 11 relief fund. However, in a written statement circulated by his publicist during the visit, the prince declared: "At times like this one, we must address some of the issues that led to such a criminal attack. I believe the government of the United States of America should re-examine its policies in the Middle East and adopt a more balanced stance toward the Palestinian cause." In reaction, Giuliani angrily returned the donation. Days later, in an interview with a Saudi newspaper, Al-Walid blamed Giuliani's decision on "Jewish pressures."¹¹

Since then, he has avoided publicly challenging the Bush adminstration. Despite indications that up to $200 billion in Saudi money has been withdrawn from the United States in the aftermath of a lawsuit filed against Saudi Arabia by families of 9/11 victims, Al-Walid maintains that he will stick with his American investments.

Al-Walid's efforts to stay in good graces with the United States, his political maneuvering in Saudi Arabia, and his efforts to build popular support for himself suggest that he may be looking toward the day that the monarchy falls by the wayside - at which point the fast-track to political power will be open to anyone who can combine the backing of America with a reasonable degree of popular support at home.

In the meantime, Al-Walid is pursuing political ambitions in his second homeland - Lebanon - at the invitation of Syria, which continues to occupy its smaller neighbor with over 20,000 troops and remains the dominant power broker in the country. During two high-profile visits to Beirut for the March 2002 Arab League summit and the opening of his $140 million Movenpick hotel in July, he sharply criticized the economic policies of Prime Minister Hariri and met with his political rivals. Moreover, the prince has fanned media speculation that he aspires to replace Hariri. Asked by CNN in August whether he hoped to become prime minister, he said that he would decide "when the time comes." [see With Syrian Backing, Saudi Prince Challenges Hariri in this issue of MEIB].

Notes

  ¹ Business Week, 25 September 1995.
  ² The Times (London), 30 November 2001.
  ³ Business Week, 25 September 1995.
  ⁴ Ibid.
  ⁵ The Economist 27 February 1999.
  ⁶ Newsday, 28 October 2001.
  ⁷ Business Week, 15 October 2001. Al-Walid's last major donation to the mujahidin was $5.4 million in April 1990.
  ⁸ The Economist, 27 February 1999.
  ⁹ Associated Press, 7 June 1999.
  ¹⁰ United Press International, 11 December 2001.
  ¹¹ Associated Press, 13 October 2001.