Hounded by Bad Debts, Bad Deals and Angry Creditors, Adnan Khashoggi Defends His Dwindling Empire

updated 02/09/1987 AT 01:00 AM EST

originally published 02/09/1987 AT 01:00 AM EST

The reports were startling—indeed well-nigh unbelievable. Could it really be that Adnan Khashoggi, the shadowy Saudi financier with a reputation as the world's richest man (worth $2-4 billion supposedly), was suffering from an embarrassing cash-flow crunch? The evidence was compelling. Even Khashoggi's outrageous fortune, it seemed, was not impervious to the slings and arrows of political mishaps, falling oil prices and fiscal hubris. Last month his two lavish jets were seized in Paris and held for two weeks until Khashoggi, 51, made a $7.5 million payment on loans from the London-based Lonrho corporation and its chief executive, Roland "Tiny" Rowland. A New York court decreed that his 30,000-square-foot, $30 million Manhattan aerie overlooking St. Patrick's Cathedral would go on the auction block unless he made a $2.2 million payment on the Lonrho debt. Nabila, his 282-foot, $70 million yacht—with its eight staterooms and on-board helicopter—was leased, or maybe sold, to the Sultan of Brunei. His $1 billion Salt Lake City real estate project was besieged by fuming creditors seeking to recover $140 million.

Like some impoverished landowner discreetly hocking heirlooms, the free-spending Khashoggi has borrowed against his prized possessions and run into trouble. A French bank had loaned him $30 million but demanded he use his villa in Marbella, Spain as collateral. His 180,000 acres in Kenya were also attached by Lonrho. For a man who puts great stock in appearances, these revelations are humiliating. Never before have Khashoggi's personal assets been so heavily—and so publicly—compromised.

In some ways, it seemed inevitable that Khashoggi's profligacy would catch up with him. As one former employee notes, "Adnan is the biggest non-billionaire in the world. He made more money faster than anybody had ever done but he also spent it faster."

For Khashoggi, conspicuous consumption has always been a means of attracting business. That—and an end in itself: "I am an artist with my wealth," he says. With other homes in Paris, Cannes, the Canary Islands, Madrid, Beirut, Riyadh, Jidda and Monte Carlo, he is perpetually in transit—attended by an entourage that includes a masseur, a valet and a chiropractor. Sumptuous entertaining is his trademark; for his 50th birthday in July 1985 some 400 guests—including Brooke Shields—gathered in Marbella for a three-day half-a-million-dollar fete.

The problems created by AK's extravagance have been compounded by his role as broker in the U.S.-Iran arms deals debacle. Iran's refusal to pay for "defective" equipment left him in the lurch, he claims, and there has been no aid or comfort from the Reagan administration. "This is what I get for trying to help the United States," he has complained. "At the time when U.S. officials begged me to help finance the arms deals, they told me I was their savior. Now that they have screwed up the process and left me responsible for $15 million in funds used to finance the operation, nobody gives me a straight answer. Uncle Sam has a strange way of thanking friends."

The deal has cost Khashoggi in other ways. As an Arab nation that supports Iraq in its war with Iran, Saudi Arabia was embarrassed by the unveiling of Khashoggi's dealings with Iran and Israel. "His role in Irangate did not fill the Saudis with joy," says a French financial adviser to another Saudi multimillionaire. "Creditors always knew that with his strong backing from the Saudi royal family, they could grant him loans." The Saudis' support may be wavering, he adds, and moneymen are now going after Khashoggi "like a pack of dogs." Even if the royal family hasn't turned against its unofficial emissary, the business relationship seems to be in limbo. Reductions in Saudi oil revenues have slowed expenditures on the arms deals with the U.S. and other Western countries that brought Khashoggi millions in commissions. And payments for transactions already completed may be held up, according to one former business associate: "He has fronted millions for the royal family, and now, because of the Iran scandal, my guess is that they and others are afraid to pay him through normal channels. He will get the money maybe in a few months, but it will take time to hide the channel."

Some sources knowledgeable about the Khashoggi empire are guessing that the portly tycoon is far from finished. Ronald Kessler, author of a 1986 biography on Khashoggi, says, "His wealth has always been based on arms deals. Suddenly he gets a new deal and he's the richest man in the world again. It's either feast or famine."

Khashoggi's holdings are so far-flung and secret, however, that probably only he and his accountants know exactly where he stands. "We are a holding company with very diversified enterprises deployed in 36 countries," said Khashoggi. "In certain parts of the world, we are in a position of weakness...in others, in a position of strength."

When deals go bad, Khashoggi is ruthless in cutting his losses. "If a business venture isn't going well, he's not about to take money out of another company to make it go," says a close associate. In the case of the Utah-based Triad America—which was transforming the Salt Lake City skyline with a showy office-and-shopping complex—that means abandoning the overly ambitious project in midconstruction while creditors grow shrill. Blaming Triad's troubles on the alleged inhospitality of city officials, Khashoggi told the Deseret News, "I will bankrupt the company and to hell with everybody...I have nothing to lose."

His bravado notwithstanding, there have been signs for some time that Khashoggi has been scaling down his operations. At its peak his empire had 140 employees spread around the world; now there are fewer than 50 stationed in eight countries.

Thus far, Khashoggi's $250,000-a-day life-style has suffered .fewer incursions. He sold his house in Rome, and the staff at his Canary Islands estate has been cut back. But even as a strike by 60 servants at Marbella (prompted by his failure to pay wages for several months) was being settled, the man who believes that nothing succeeds like excess was spending money like the old Adnan: dropping $1 million at the gaming tables in Las Vegas, ordering $900 bottles of wine and presenting wife Lamia with a diamond, emerald and ruby necklace valued at $1.9 million. If he is headed for the poorhouse, Adnan Khashoggi, it seems, will do it in the manner to which he has become accustomed.

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