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Saudi investors check out after hotel turned into luxury prison

Political risk and investment

Saudi investors check out after hotel turned into luxury prison

Mood of optimism swings to concern in wake of corruption purge

Crown Prince Mohammed, second left, with guests including Masayoshi Son (third left) of SoftBank at the Future Investment Initiative conference in Riyadh © AFP

As they mingled with Saudi Arabia’s business and political elite at the Ritz-Carlton in Riyadh last month, the world’s top financiers were effusive in their praise of Crown Prince Mohammed bin Salman’s vision to modernise the conservative kingdom.

But 10 days later, with the hotel turned into a deluxe jail for the hundreds of princes and businessmen rounded up in an extraordinary corruption crackdown, the mood of many of the foreigners considering investing in the world’s top oil exporter has turned from enthusiasm to alarm.

“Half my Rolodex is in the Ritz right now. And they want me to invest there now? No way,” said one senior investor. “The wall of money that was going to deploy into the kingdom is falling apart.”

The corruption purge, which has targeted some of Saudi Arabia’s wealthiest and highest-profile businessmen, including Prince Alwaleed bin Talal, the billionaire, has been welcomed by Saudis who view it as a much-needed move to recoup what they believe are ill-gotten gains. But foreign investors have been stunned by the speed and scope of Prince Mohammed’s campaign. It has raised concerns about due process in the kingdom at a time when executives were studying proposals to invest in some of the heir-apparent’s grandiose projects, not least a $500bn city in the desert.

“One day we are sleeping at the Ritz-Carlton, excited about a new era,” said one regional investor. “The next day they have turned the hotel into a prison — what sort of message does this send us? We some need stability.”

The boss came back enthused. Now he’s just wondering what the hell is going on over there

Senior western banker

The Financial Times revealed this week that Saudi authorities are negotiating settlements with the residents of the Ritz-Carlton and offering deals in which they pay for their freedom. In some cases the government is seeking to appropriate as much as 70 per cent of suspects’ wealth, said two people briefed on the discussions.

The crackdown coincides with prolonged low oil prices that have plunged the economy into recession, leaving Riyadh to grapple with a budget deficit that hit $79bn last year.

Prince Mohammed is desperate to attract foreign investment to back his plans to wean the economy of its addiction to crude, privatise state assets, including Saudi Aramco, the oil company, and create hundreds of thousands of private sector jobs for young Saudis. Officials have insisted that the anti-corruption drive will boost the investment climate.

But fears that the dragnet is part of an effort to neutralise opposition to the prince’s rapid elevation to heir-apparent this year and his ambitious reform programme have added to investor jitters.

The crown prince’s charismatic performance at the investor conference last month, where he unveiled plans for a new megacity known as Neom had excited foreign investors about the prospects for Saudi Arabia. He also pledged to reject extremism and adopt moderate Islam as he wooed the gathering of hundreds of bankers and executives and sought to present a new image of the kingdom.

“The boss came back enthused,” said a senior western banker. “Now he’s just wondering what the hell is going on over there.”

Bankers says investors want reassurances that capital deployed in the kingdom will be safe. Private bankers say Arab money is now flowing into Switzerland at the fastest pace since 2011 when popular uprisings swept across the Middle East. Prominent local families so far unaffected by the crackdown are keen to preserve their assets in case the purge widens.

One Asian banker said his lender was looking to secure “letters of comfort” from the royal court or other senior government entities before brokering joint ventures or lending money to Saudi companies.

Foreign investors tend to enter the Saudi market via partnerships with established business franchises or princes as they seek to exploit their domestic clout to navigate a complicated bureaucratic landscape.

The manager of a private equity fund said he had been close to completing the acquisition of a healthcare supplier. His Saudi partner is a low-profile businessman unlikely to cross the radar of anti-corruption drive, but the manager said the deal would be on hold “until it becomes clearer how things are going to operate from now on”.

Still, Nasser Saidi, a consultant and former Lebanese economy minister, believes the knock to confidence will be balanced in time by a better investment climate.

“There is a wait-and-see attitude now among investors,” he said. “But there are always short-term costs when you start an anti-corruption drive. It is necessary and welcome. You want transparency and clean procurement systems.”

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