Latest Financial Setback for Billionaire Saudi Arms Dealer : Sultan of Brunei Seizes Khashoggi Yacht

Control of Adnan Khashoggi’s prized yacht, the Nabila, has been seized by the Sultan of Brunei for nonpayment of a $50-million loan, The Times has learned, in the latest in a series of financial setbacks bedeviling the Saudi Arabian businessman who was a key middleman in U.S.-Iran arms deals last year.

It also has been confirmed that Khashoggi’s luxury DC-8 jetliner has been grounded by litigation over a $15-million loan he defaulted on last year. And a DC-9 that associates call his “spare plane,” has been locked up on a Paris airfield awaiting resolution of a $3.5-million dispute with a former business associate in London.

“He’s had a cash-flow problem for seven or eight years but now his debt bubble seems about to burst,” said a source close to Khashoggi who also noted that “everything he owns is mortgaged.”

‘Story Isn’t Over’

However, Robert Shaheen, a New York spokesman for Khashoggi, cautioned that reporters “shouldn’t be too hasty to say” Khashoggi is in financial trouble. “Our story isn’t over,” he said.

The legal actions involving the yacht and planes indicate that financial pressures have been mounting in recent months against the Saudi deal-maker and international arms merchant once regarded as “the richest man in the world.” They suggest that Khashoggi’s chronic financial problems were in no way eased by his role as a broker in the U.S. arms deals.

One source close to Khashoggi told The Times that the arms merchant thought that the profits he would earn in brokering the arms sale between the United States and Iran “would be his next big score.” But Khashoggi, who has claimed he acted as a middleman in the scheme only to help foster peace in the Middle East, now says he lost money in the deal.

Ousted as Directors

Panamanian business records and sources said that in April Khashoggi and his partners were ousted as directors of the Panamanian company, Silingroup Investment Inc., that owns the Nabila, a 287-foot, helipad-equipped yacht named for Khashoggi’s daughter.

They were replaced by representatives of the sultan, who guaranteed the yacht construction loan of about $50,125,000 made by a Swiss bank. The sultan was forced to pay off the loan personally in 1985 after Khashoggi defaulted on his first annual interest payment.

Knowledgeable sources said Thursday it is doubtful that Khashoggi can prevent the yacht from being auctioned, but there are reports that he may be trying to negotiate a last-minute compromise.

Shaheen said he could not comment on “the whole situation of the Sultan of Brunei (which) has lots of complications and entanglements. . . . I’m sure you’ll find out that there are mirrors upon mirrors in that deal.”

Complicating one possible compromise is the legal tangle involving Khashoggi’s $35-million DC-8. Sources said the financier might have been able to surrender it to the sultan to keep the yacht.

However, last year the plane was grounded in Paris after London tycoon Roland W. (Tiny) Rowland seized it to satisfy a $2.5-million debt that Khashoggi had secured with the aircraft.

Rowland, who has called Khashoggi “the great unbillionaire,” a derisive reference to his reputed wealth, released his claim against the jetliner early this year after $2.5 million was paid by Kamal Adham, a friend of Khashoggi and the former head of Saudi intelligence.

Jet Seized Again

But no sooner was the DC-8 released than it was seized again in connection with litigation brought in the Cayman Islands by Aetna Life & Casualty Co.

Cayman Island records and sources familiar with the case reveal that the Connecticut insurance company is petitioning to liquidate Handlingair Douglas Ltd., Khashoggi’s Cayman company that owns the plane. Khashoggi used the plane as collateral for a bond he obtained from Aetna to insure a loan for a real estate project in Salt Lake City. The loan went into default last year and the bond paid it off.

Meanwhile, Rowland has continued to tie up Khashoggi’s ownership of the DC-9, grounded in Paris for several months over Rowland’s claim of another $3.5-million loan that Khashoggi failed to pay. Negotiations were continuing late this week to release the twin-engine jetliner. Rowland has also made an unsuccessful attempt to foreclose on Khashoggi’s penthouse apartment on New York’s 5th Avenue.

“He’s a lovable person . . . but Khashoggi’s day is past,” asserted Rowland, a one-time business associate of the Saudi businessman, in an earlier interview.

Sources say that Khashoggi is most concerned about the impending loss of the Nabila. The yacht occupies a special over-sized berth at Antibes, near one of Khashoggi’s residences in Cannes.

$50-Million Balloon Payment

The note on the yacht went into default March 31 when Khashoggi failed to pay off a balloon payment of $50 million, plus interest, that came due this year. Proserpine, the Panamanian company representing the sultan, immediately moved to liquidate Silingroup.

Removed from the board of Silingroup at a special meeting of shareholders in Geneva on April 6 were president Khashoggi and his associates Mohamed El Saadawi and Sabih M. Deif. They were replaced by Geneva and Panama City-based attorneys for Proserpine.

Estimates are that the yacht could bring no more than $20 million to $25 million at an auction, an amount roughly equal to the theoretical equity in Khashoggi’s DC-8, even after the defaulted bond it secures is paid off. One source said that Khashoggi is considering trying to buy the yacht back at auction for half what he owes.

“But he doesn’t have $20 million either,” the source said.