Alwaleed Buys Citigroup Stock as Loss Exceeds Buffett (Update2)
By Ben Holland
Nov. 20 (Bloomberg) -- The Warren Buffett of the Gulf is taking a bigger hit from the credit crunch than the original.
Prince Alwaleed bin Talal was lauded by Time magazine as the Middle East's answer to the Sage of Omaha after a 1991 investment in Citigroup Inc.'s predecessor helped make the Saudi billionaire one of the world's five richest people.
This year, Alwaleed's investments aren't keeping pace with regional benchmarks, let alone Buffett. His Riyadh-based Kingdom Holding Co. has slumped 63 percent -- more than Saudi Arabia's Tadawul All-Share Index or Buffett's Berkshire Hathaway Inc. -- wiping out $13 billion in value.
Kingdom today said Alwaleed will boost his Citigroup stake, his largest holding, to 5 percent, even after the shares fell more than 80 percent since Jan. 1.
When people nail their colors to the mast in such an obvious way, if then it all blows up, then that's very damaging to your reputation, said Ken Murray, chairman of Blue Planet Investment Management in Edinburgh, who says he shorted shares in Citigroup last year.
Alwaleed and his companies are buying Citigroup shares because the prince believes they are dramatically undervalued, Kingdom Holding said in a news release. The combined stake stands at less than 4 percent after recent Citigroup share sales diluted the holding, Kingdom said.
Prince Alwaleed is fully confident that Citigroup's universal banking model and global franchise will make it a long- term winner in the financial services industry, Kingdom said.
The announcement failed to halt Citigroup's slide. The shares slumped 17 percent to $5.30 as of 10:10 a.m. in New York trading, extending this week's drop to 45 percent on concern banks will post further losses next year as the economy falters.
A Billionaire's Life
Like Buffett, Alwaleed, 53, built his fortune by investing in brand-name companies he considered were undervalued, including Apple Inc., News Corp. and Time Warner Inc. Forbes magazine estimated he was worth $21 billion in March, ranking him 19th among the world’s billionaires.
A nephew of the late King Fahd bin Abdulaziz al-Saud, Alwaleed stands out among more than 2,000 Saudi princes because he’s made money. After earning a bachelor’s degree from Menlo College near San Francisco, he returned to the Persian Gulf and parlayed an inheritance of less than $1 million into a billion- dollar fortune in the 1980s, mostly through real estate investments, according to Riz Khan’s biography “Alwaleed: Businessman, Billionaire, Prince†(William Morrow, 2005.)
Alwaleed’s arrival as a celebrity investor came with the Citicorp stake, for which he paid the equivalent of $2.98 a share after adjusting for stock splits, acquisitions and spinoffs, according to Bloomberg calculations. In the decade through 2007, the stock averaged $42.
$319 Million Plane
Unlike Buffett, who for years drove a 2001 Lincoln Town Car, Alwaleed enjoys the trappings of wealth. His garage contains two of everything -- including a pair of Rolls Royce Phantoms -- as the prince buys a matching model for his bodyguards whenever he picks a new car, according to Forbes. Buffett paid $31,500 for the home in Omaha where he’s lived for 30 years; Alwaleed spent $100 million on his 317-room Riyadh palace.
And when Airbus SAS put the world’s biggest aircraft, the A380 superjumbo, on sale last year, Alwaleed was the first private customer to order one. That cost him $319 million, and fitting out the plane’s interior may cost “several hundred million†more, Airbus said.
Also in contrast to Buffett, Alwaleed’s investments are underperforming in the credit crunch. The prince’s reluctance to exit positions may be one reason.
‘Never Sell’
“There are some assets I would never sell,†he told the U.K.’s Independent newspaper in 2005, citing Citigroup, News Corp. and the luxury hotel group Four Seasons Hotels Inc.
In another 2005 interview with Charlie Rose of the U.S. Public Broadcasting Service, Alwaleed outlined his criteria for buying stocks. “The return on investment in the coming five to 10 years has to be within our acceptable conditions,†he said. That means “at least 20 to 25 percent†annual returns.
Few investors, including Buffett, are making that kind of money this year.
Berkshire Hathaway fell the most in at least 23 years yesterday, dropping for the eighth straight day since reporting a 77 percent decline in third-quarter profit.
Still, the stock has beaten the Standard & Poor’s 500 Index this year, falling 41 percent compared with a 45 percent drop in the U.S. benchmark.
Those who bought Kingdom Holding shares when Alwaleed took his company public in a July 2007 initial share sale have lost 55 percent. The Tadawul index fell 45 percent in the same period. Alwaleed still owns 94 percent of Kingdom Holding.
Bargain Hunter
There’s every chance the prince will unearth fresh bargains in the current slump, says John Rossant, executive chairman of Publicis Live, which organizes World Economic Forum events in the Middle East and elsewhere.
When Alwaleed bailed out Citicorp in 1991, the New York- based bank “was very close to going bankrupt, the stock price was a fraction of what it is even today,†says Rossant, who has worked with Alwaleed since the mid-1990s and calls the Citicorp investment “one of the smartest of all time.â€
“You’ve got to think, if you look over the equity landscape today, that there are similar situations,†he says. “If you’ve got capital now, and you have to assume that someone like Alwaleed does, he would stand to make a lot of money.â€
Right now, he isn’t. Kingdom Holding has stakes in 15 publicly traded non-Gulf companies, according to its Web site. Only four have outperformed their national benchmark this year, according to Bloomberg data.
Those four are among Kingdom’s smaller stakes: it owns 1 percent or less of Hewlett Packard Co., PepsiCo Inc., Walt Disney Co. and Procter & Gamble Co., according to the Web site.
Jeddah Skyscraper
Alwaleed’s larger holdings are faring worse.
Kingdom holds 7 percent of New York-based News Corp., Rupert Murdoch’s media company, which has fallen 69 percent this year. Songbird Estates Plc, the majority owner of London’s Canary Wharf financial district, plunged 82 percent as tenants such as Lehman Brothers Holdings Inc. went bust. Alwaleed owns 21 percent of Songbird, according to data compiled by Bloomberg.
Alwaleed is also one of two Middle Eastern investors racing to build the world’s first kilometer-high skyscraper in the Persian Gulf. On Oct. 13, Kingdom Holding announced plans for the Kingdom Tower, part of the $27 billion Kingdom City real-estate project in the Red Sea city of Jeddah.
Such attention-grabbing projects are under review throughout the Gulf, as oil prices plunge and borrowing costs rise. On Nov. 17, Nakheel PJSC, the Dubai-owned developer that’s Alwaleed’s rival to break the 1,000-meter barrier, announced it was “scaling back†some projects, without saying which ones.
“Real estate is bound to correct downward, and a lot of projects are going to get delayed,†says John Sfakianakis, chief economist at Saudi British Bank in Riyadh. “The region’s going through the final stages of what I call the ‘mine is bigger’ syndrome.â€