#Bahrain land deals highlight alchemy of making money from sand – FT.com

Rising out from the sea on the Manama shore is a new Four Seasons hotel, a 68 storey skyscraper on an exclusive private island. Scheduled to open early next year, it will be home to three restaurants run by celebrity chef Wolfgang Puck and will offer a range of luxurious amenities.

The imposing structure is part of Bahrain Bay, a $2.5bn development that juts out on to what previously was an expanse of water.

For the developers it is part of an ambitious vision for 21st century Bahrain. For activists, it is a symbol of inequality in a country marred by human rights violations and sectarian strife, where an acute housing shortage persists even as exclusive developments multiply.

Bahrain Bay is just one of many large projects on reclaimed land that dot the arid coastline of this tiny, densely populated archipelago. But the way this land was acquired has focused questions on the contested line between public and royal land ownership.

Opposition politicians say undersea plots, which were subsequently reclaimed for development, should be state property. A Financial Times investigation shows that Premier Group, an investment vehicle that people familiar with the situation say is owned by King Hamad al-Khalifa and his family, effectively used such offshore plots to obtain stakes in private joint venture projects. Bahraini lawmakers have found no record of payments to the state for these plots.

The FT found that subsidiaries of Premier Group have shares in projects that have an investment value of at least $22bn at home and an extensive luxury property portfolio in Britain.

Corporate and land registry filings reviewed by the FT and documents provided by the donor-funded volunteer campaign group Bahrain Watch, show that one Premier Group subsidiary in particular, Stone Company, played a pivotal role in the monarchy’s pursuit of profits in Bahrain and the UK.

Stone Company bought luxury hotels, flats and office buildings in Britain worth an estimated $900m. Many of them were purchased in 2006 and 2007 when Premier Group struck several lucrative deals to develop property on land that was to be reclaimed from the sea.
Bahrain map

A person familiar with Premier Group’s financial dealings told the FT that the company chose London as an investment haven. Some of these property purchases were funded by “land sales”, that person said. Premier has recently sold some of its UK portfolio, according to property registers.

Over the past decade, Stone Company and its affiliates became the owners of numerous underwater plots off Bahrain’s shore.In 2002, the king issued a law giving himself the sole authority to grant state land rights. In several cases, he used that power to transfer plots to companies linked to Premier Group, according to land deeds seen by the FT.

The land deals have been controversial for years.
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In 2011, as Arab uprising protests erupted, activists in Bahrain took to the streets to demand more political rights and an end to corruption. They also protested against the controversial reclaimed land deals that the opposition regards as expropriation of public assets. The government embarked on a bloody crackdown and dozens of Bahrainis later sought asylum in the UK.

As Bahrain’s wealthier Gulf neighbours invest $10bn to revive the island’s economy, the government has begun a drive to revive its business-friendly image. But political stability remains a distant prospect following an opposition boycott of general elections last month.

The FT’s investigation has established that some of the underwater plots given to Premier Group’s subsidiaries were later exchanged for stakes in multibillion dollar joint ventures, with Islamic banks and other investors, to build housing, commercial property and luxury hotels.

Premier Group, the royal court and King Hamad al-Khalifa did not respond to requests for comment. The Bahrain embassy in London said it could not comment on matters regarding private companies.

“These assets belong to the people of Bahrain and need to be returned to the state budget,” Bahrain Watch said. “The island’s beautiful coastlines have been privatised and destroyed to pave way for the ruling family’s private developments.”
The King of Bahrain Hamad bin Isa Al Khalifa (C) speaks to media during a welcome ceremonial at the Presidential Palace in New Delhi on February 19, 2014. The King of Bahrain Al Khalifa is in India for a three-day state visit. AFP PHOTO/RAVEENDRAN (Photo credit should read STR/AFP/Getty Images)©AFP

The King of Bahrain Hamad bin Isa Al Khalifa. Source: STR/AFP/Getty Images

One controversial project is Diyar al-Muharraq, a $3.2bn residential and commercial development on the northeastern tip of Bahrain. A joint venture between Premier Group subsidiaries and Islamic bank Kuwait Finance House, it is Bahrain’s largest private urban development site and could one day house 100,000 people.

Part of the land used in the project was owned by “Stone”, according to a document obtained in a 2010 parliamentary investigation.

In 2007 the joint venture partners began raising money via an Islamic bond, or sukuk. The bond’s proceeds and advance sales would fund the project’s development costs, according to the sukuk prospectus.

The prospectus reveals the financial alchemy of making money out of sand. The land was deemed a $103m “in-kind” contribution to the partnership with sukuk investors. The investors hoped to sell the land to secondary developers for $1.3bn.
“[Bahrain’s] beautiful coastlines have been privatised and destroyed to pave way for the ruling family’s private developments”

– Bahrain Watch

A few miles farther west, Bahrain Bay also promised healthy financial returns for Premier Group. Adjoining the capital’s central business district, Bahrain Bay boasted flagship developments such as the headquarters of Islamic bank Arcapita, as well as a Four Seasons hotel.

In December 2005, Bahrain Bay Development, a joint venture between Arcapita and a subsidiary of Premier Group sought to raise $175.4m from investors to make that vision a reality.

Title deeds seen by the FT show that the plot where Arcapita and the Four Seasons hotel are built belonged to Stone Company.

Premier Group’s land was, once again, its ticket into the joint venture. This time, land worth $136.4m was provided in exchange for a 40 per cent equity interest in the company developing Bahrain Bay, according to financial documents seen by the FT.

Premier Group’s pursuit of robust investment returns continued in 2008 when it embarked on the reclamation of Marsa al-Seef, the site of another proposed exclusive project in northern Bahrain, valued at $2.5bn.

Premier Group also obtained its stake in a joint venture with international investors by contributing land plots.

When international investors were sought to help fund Marsa al-Seef, they were told to expect an 85 per cent return on investment within three years, according to a financial document.

But today, six years after the project began, Marsa al-Seef is a victim of the global credit crunch and Bahrain’s strife-ridden economy. The site remains a barren stretch of sand off the coast of one of Bahrain’s poorer villages, where graffiti depicting dead and jailed protesters cover shabby buildings along potholed roads.

Bahrain land deals highlight alchemy of making money from sand – FT.com.

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About angelajoya

Assistant Professor, Middle East Political Economy, at the University of Oregon. Currently writing on the Egyptian revolution and the Syrian crisis.
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