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The Observer
Sunday, 12 April 1987
Fayeds' £20m HoF loss
by LORANA SULLIVAN
The dependence of the secretive Egyptian Mohamed Fayed and his brothers on outside financing for House of Fraser Holdings, the English company controlled from Liechtenstein which owns the Harrods stores group, is emphasised in the 1986 accounts recently filed at Companies House.
The Fayeds' hotly contested take-over of House of Fraser two years ago with a £615 million cash bid was last week made the subject of a full-scale inquiry. This will investigate their purchase of the group.
Borrowings have jumped £275 million to a total of £739 million when the figures for Holdings and its House of Fraser subsidiary are added together.
As a result, Holdings had a pre-tax loss on its ordinary activities in 1986 of £37.4 million after paying interest of £56.7 million.
After adding back group tax relief of £17.5 million, Holdings' loss for the financial year to 3 May last was £20 million. The Fayeds took control of the Harrods group on 11 March 1985.
Bank loans and overdrafts due within one year were listed at £32.9 million in Holdings' balance sheet. Loans due after more than one year comprised a syndicated bank loan of £425 million and a £100 million subordinated, unsecured and interest free loan from the Liechtenstein parent. House of Fraser itself had total borrowings of £281 million, up from £109 million.
The Fayeds have hinted strongly that they may take some unspecified action as a result of the DTI announcement. In a deliberately worded statement issued on Thursday, they first said: 'Naturally we do not welcome the inconvenience of an inquiry, but our immediate reaction is to welcome it as an opportunity to clear this matter up once and for all.'
The second and last sentence added: 'However, we are consulting our legal advisers and our future action will be determined by their advice.'
On Friday, their spokesman refused to elaborate on this ambiguous statement. In theory, at least, the Fayeds might be able to challenge the DTI's action in the courts. They could press for their investigation to be widened to include activities by Lonrho. Or they could consider a sale of the group.
At the heart of the investigation by DTI inspectors Philip Heslop QC and chartered accountant Hugh Aldous, who will have the power to compel testimony under oath, will be the question which The Observer and Lonrho, its owner, have been asking persistently for more than two years: Where did the funds for the Fayeds' £615 million bid for House of Fraser come from?
Meanwhile, the DTI said that it saw no conflict of interest for Heslop, currently acting for dismissed Guinness chairman Ernest Saunders, who met Lonrho chief executive Tiny Rowland earlier last week. Heslop is acting in the action brought by Guinness against Saunders.
On Wednesday, Rowland wrote to Trade & Industry Secretary Paul Channon complaining about how the government handled the Guinness bid for Distillers. Rowland's complaints were based on a meeting in Switzerland with Saunders on Monday which Rowland says was only the second time they had talked.
The disclosure of Rowland's meeting in Switzerland brought an immediate response from the Fayeds. 'They are considering their options very carefully,' said the spokesman, who again refused to elaborate for the benefit of The Observer.
Finally on Friday Mr Justice Vinelott continued a High Court Order freezing 280,000 Lonrho shares held by House of Fraser and three nominees and another 30,000 Lonrho shares held by Royston Webb, Fraser's in-house lawyer.
Lonrho had applied for the orders after it had obtained unsatisfactory information about the ownership of Webb's shares as well as another 24,000 held by five people employed by solicitors acting for House of Fraser. The judge said Lonrho had supported its belief that House of Fraser had not provided 'wholly accurate or complete' answers to Lonrho's requests for information. Fraser and Webb were given leave to appeal.
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