(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own)
By Una Galani
DUBAI, June 21 (Reuters Breakingviews) - UBS UBSN.VX has
got itself into a royal pickle in Kuwait. The Swiss bank is
fighting a claim that it failed to pay a local sheikh for
helping it secure the $10.7 billion sale of the African
subsidiary of part state-owned telecom operator Zain (ZAIN.KW).
UBS denies that it entered into any contract with the sheikh.
Yet if nothing else, the case has exposed the lengths to which
big banks will go to schmooze Gulf royals.
Sheikh Meshal Jarah al-Sabah, a former head of Kuwaiti state
security and member of the royal family, says he had a verbal
agreement that UBS would pay him between 0.1 to 0.2 percent of
the total sale value. He claims UBS was paid a fee of $60
million for its role as lead advisor on the transaction.
It is not uncommon for banks in the Middle East to give away
up to 30 percent of their fees to a prominent local
intermediary. But a written contract is usually a pre-requisite.
Besides, UBS had advised Zain on previous deals and hardly
needed an introduction to the firm.
Moreover, the fee the sheikh claims UBS received -
equivalent to 0.6 percent of the deal's value - looks high for a
region known for driving a hard bargain with investment bankers.
UBS says it earned $22.5 million, or 0.2 percent of the deal's
value, which is closer to the average for Middle East
transactions, according to Freeman, a merger consultancy.
The embarrassment for UBS is the lengths to which it went to
accommodate the royal. It confirms in the court papers that it
invited the sheikh to formally apply for a non-executive job at
the bank. As part of that process, the bank says it granted the
sheikh separate meetings with two of UBS' top global investment
bankers which took place after the Zain deal was agreed in 2010.
The sheikh ultimately ended up as an adviser to an unnamed
Russian telecom firm, understood to be Vimpelcom VIP.N, on its
operations in Algeria - a recommendation he claims was made by
UBS shortly after the verbal agreement.
It is impossible to say what impact the public spat will
have on UBS' business. In a region where ruling families control
big deals, where blood ties often trump all other
considerations, and where business is scarce, falling out with a
sheikh of any stature is always a risk.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- UBS is fighting a legal claim that it failed to pay a
Kuwaiti royal for his help in securing a $10.7 billion deal to
sell the African assets of local telecom operator Zain to
India’s Bharti Airtel (BRTI.NS) in 2010.
- Sheikh Meshal Jarah al-Sabah, a member of the ruling
family and former head of Kuwait state security, is suing the
Swiss bank in the Dubai international court for $21.4 million.
The sheikh claims the bank made a verbal agreement to pay him
0.1 to 0.2 percent of the total sale value of the assets.
- UBS denies any agreement was made and that the total fee
paid to the bank for the transaction was $22.5 million, not $60
million as claimed by the sheikh.
- The bank confirmed in court papers that it asked the
Kuwaiti royal to formally apply for a non-executive position
with the bank, and that he met with the then co-chief executives
of the global investment bank Alex Wilmot-Sitwell and Carsten
Kengeter. The bank confirmed the meetings took place in May
2010, after the deal between Zain and Bharti was agreed.
- UBS advised on Zain’s past deals including the $3.4
billion acquisition of Celtel International in 2005, the
purchase of 65 percent of Nigeria’s Vmobile in 2006 and a bid
for Pakistan’s Paktel in 2007.
- Saad al-Barrak, then chief executive of Zain, told the
Financial Times that the firm had a “great strategic
relationship” with UBS over many years.
- Legal documents for the case became publicly available
between January and May this year. The legal representatives of
both sides were due to meet in a case management conference on
- Court documents: r.reuters.com/ber88s
- FT story: r.reuters.com/zar88s
-- For previous columns by the author, Reuters customers can
click on [GALANI/]
(Editing by Peter Thal Larsen and Sarah Bailey)
Keywords: BREAKINGVIEWS UBS/
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