BUSINESS/ECONOMY

Khashoggi’s connections

DARCY JENISH January 19 1987
BUSINESS/ECONOMY

Khashoggi’s connections

DARCY JENISH January 19 1987

Khashoggi’s connections

BUSINESS/ECONOMY

He is reputedly the richest man in the world. Adnan Khashoggi, the Saudi arms dealer and international businessman, owns customized jet aircraft, Rolls-Royce autos and a business empire that spans five continents. But at least on some fronts, the billionaire is now in retreat. He has been implicated in the Iranian arms scandal, and a combination of unpaid bills, loan problems and lawsuits have left Triad America Corp., his U.S. holding company, in distress. Khashoggi’s fortunes now appear to be closely tied to the Vancouver Stock Exchange (VSE) and to the mysterious Donald W. Fraser, 42, an accountant from Toronto whom he hired to revive his North American empire. But the seemingly undaunted Khashoggi is now promoting an expedition, financed by a VSE-listed company, Vault Explorations Inc., of which he is listed as chairman, to find King Solomon’s fabled gold mines. Last week, while lawyers battled over Triad’s assets, there were rumors that the indefatigable Saudi was in his I ■Manhattan penthouse entertaining potential investors in his search for the legendary treasure.

Khashoggi named Fraser president and chief executive officer of Salt Lake City-based Triad on March 25, 1986. The newly installed executive moved quickly to stem Triad’s losses by selling company assets and cutting staff. He also encouraged Khashoggi to invest in a company listed on the VSE, Skyhigh Resources Ltd., which was managed by a close Fraser associate, Ronald Philp. Khashoggi was named chairman of Skyhigh last fall, and the company subsequently announced that it planned to purchase Long Beach, Calif.-based Edgington Oil Company

Inc., a Triad subsidiary.

In the meantime, Skyhigh’s stock skyrocketed to $16.25 on Dec. 11 from a low of 68 cents in March, 1986. But on that day the wild ride stopped suddenly. A Triad creditor, Sheraton Corp., had contested the proposed Edgington deal in U.S. district court in Salt Lake City, and the VSE halted trading in Skyhigh at the request of the company. Last week Skyhigh, blaming negative publicity surrounding Khashoggi’s and Fraser’s alleged involvement in the Iranian arms deal, announced that the Edgington proposal had collapsed, and that a new takeover proposal was in the works. The exchange quickly lifted the ban, and the stock was to resume trading this week.

But Khashoggi was also buffeted again by the VSE when it banned trading in Vault shares until the company provided more information on its King Solomon’s mines venture in Mali, West Africa. A press release issued by Vault said: “Gold may be the only commodity with any real value within the next few years. It

has long been known that perhaps the last great gold reserves are in the country of Mali in West Africa. It has been speculated that these are in fact the legendary King Solomon’s mines.” Vault shares were listed on Nov. 20 at 35 cents a share and climbed to $3.50 a share by the time trading was halted on the VSE on Jan. 6.

Attention focused on Khashoggi’s business relations with Fraser last month, after the Iranian arms scandal erupted in Washington.

At the time, it was reported that Fraser and another Canadian businessman, Toronto-area real estate dealer Ernest Miller, had made arrangements for Khashoggi to borrow $10 million from a Cayman Islands bank. But there are other links between the Saudi and Fraser.

Both were key players in a deal that resulted in a sharp rise in the price of shares in yet another company listed on the VSE, Tangent Oil and Gas, in late November.

Last week Fraser, who has avoided contact with the news media since the arms scandal broke, spoke to Maclean's from his home on Grand Cayman Island about his involvement with Tangent. Fraser said that he was approached in mid-1986 by New

York businessman Gregory Brown, who was trying to raise money for Johnson Geneva (USA) Ltd., a company that had an ambitious plan to launch a communications satellite to serve the Pacific Rim. Fraser directed Brown to Canarim Investment Corp., a leading Vancouver brokerage house, which suggested that Tangent, a small energy firm with a VSE listing, could be used to finance the satellite’s launch. Fraser quickly put together a group of investors, and they purchased $3.7 million worth of Tangent shares to finance the company’s operations. Tangent shares, which had been trading at 10 cents early in 1986, soared to $22.12 by late November. But on Dec. 11 the exchange briefly halted trading in Tangent, pending its announcement on the satellite deal, and its shares were trading at $6.50 last week.

Khashoggi, the son of a physician who served the Saudi royal family, built his fortune as a middleman in arms deals. He launched his career as an arms broker during the early 1960s, while attending Stanford University in California. His fortunes soared in the 1970s, when oil-rich Middle East countries began using their mounting petrodollars to build up their armed forces. He also used his connections with the Saudi royal family to become an agent for U.S.

arms manufacturers, and by the early 1970s charged millions of dollars in commissions on a single transaction. Khashoggi then began diversifying, but the details of his interests, involving some 52 companies around the world, are secret.

Still, his ostentatious lifestyle has frequently put him in the limelight. For his 50th birthday in July, 1985, Khashoggi entertained 400 guests, including Brooke Shields and Sean Connery, at his villa in Marbella, Spain. He owns three jet aircraft, including a DC-8 capable of sleeping 14 people. In October, 1984, Khashoggi spent three days in Toronto. He and his entourage occupied 24 rooms at the downtown King Edward Hotel while they got to know influential Canadians, including former prime minister Pierre Trudeau. Singer Paul Anka attended one dinner for Khashoggi, while former Ontario premier Frank Miller, then minister of industry and trade, hosted another.

But the Khashoggi legend and his reputation as the world’s richest man have been damaged by the financial and legal problems of Triad America. Court documents filed in Salt Lake City reveal that the company lost nearly $5.1 million in the nine months ended September, 1985, the latest financial figures available. Sheraton Corp., one of the creditors

currently suing Triad, claims that it is still owed $13.7 million following the sale of its Salt Lake City Hotel to Triad. Triad’s assistant secretary, Arthur Miller, testified that the corporation now faces claims totalling $16.9 million from 200 unsecured creditors. Secured creditors have lent the company $411 million.

Sheraton was worried about the Edgington deal for another reason. Khashoggi had pledged Edgington as the collateral on the loans he received from Fraser. However, last September Triad negotiated loan extension agreements with another creditor, First Security Bank of Utah, and pledged as security 25 per cent of Triad Energy Corp., the parent company of Edgington.

Triad is also entangled in litigation with other creditors. Travelers Companies of Hartford, Conn., the largest single creditor, lent $84.3 million to four different Triad subsidiaries and has launched foreclosure suits to collect. Last fall Travelers and Triad negotiated draft agreements under which the suits would be dropped if outstanding interest was paid either by Jan. 31, 1987, or two weeks after the Edgington sale. Yet another suit was launched in March, 1986, by The First National Bank of Boston over $959,000 owing on a loan of $1.6 million.

Desperate for a troubleshooter who could turn the company around, Khashoggi hired Fraser in 1986. But the Canadian accountant was evasive in his interview last week about how he became associated with Khashoggi and why he was hired to solve Triad’s problems. “It’s just my reputation with other people,” he said. “I’ve met [Khashoggi] on several occasions. I’ve met him at public functions. I’ve met him in business.” But Fraser emphatically denied that he was involved with Khashoggi in supplying arms to Iran and said that he was in Toronto on Dec. 18 to say so in a statement to the RCMP’s national criminal intelligence unit.

Still, Fraser did not deny having close links to Khashoggi. Fraser told

Maclean’s that he lent Khashoggi $12.3 million through his Caymansbased Euro Commercial Finances, one of his holding companies.

Now, Fraser’s strategy for saving Triad appears to be dependent on the eventual sale of Edgington Oil to Skyhigh Resources. Triad’s Miller testified last month in Salt Lake City that the Edgington deal was essential if Triad is to pay off its debt and continue operating. Edgington is a refiner and marketer of asphalt products and one of Triad’s only profitable subsidiaries in 1985. Under the terms of the now-scuttled deal, Skyhigh proposed to pay a total of $138 million for Edgington, including $48 million cash, 2.8 million Skyhigh shares and $62 million in debentures.

But the financial pressures on Triad are considerable. In one instance, Sheraton Corp., which sold its Salt Lake City hotel to Triad in April, 1985, is now suing for $13.7 million over a loan default. Sheraton obtained a temporary order in December blocking the Edgington sale and is expected to apply for a permanent injunction later this month. Sheraton argued that Edgington was being sold “for less than fair consideration to a foreign-controlled corporation that is substantially owned and controlled by the principals of Triad” —in other words, that Edgington’s owners were trying to move their asset out of the reach of creditors. The hotel company also argued that disposing of Edgington would leave Triad bankrupt. But Triad energy president Tariq Kadri has testified that First Boston Corp., an investment banking firm, was retained last June to review the Edgington bids and selected Skyhigh over five other contenders.

Despite Triad’s myriad problems, the Khashoggi name has not lost its magic. Just the mention of his involvement with a VSE-listed firm seems to send share prices soaring. And Fraser said that he has become extremely busy through his association with the Saudi billionaire. “We do see an awful lot of deals,” he told Maclean's, “because people want to do business with the richest man in the world.” The latest Canadian venture to become associated with Khashoggi is Vault, a previously obscure junior resource firm. The Vault press release says that the Solomon mines are “very large,” with “extensive gold, diamond and other precious metals with absolutely enormous potential.” But Khashoggi may have found mining the small resource companies listed on the Vancouver Stock Exchange to be nearly as lucrative as Solomon’s fabled mines.

DARCY JENISH

GUY BOULTON

FRANK O'BRIAN