|Wikileaks:||View 03AMMAN1621 at Wikileaks.org|
|Tags:||EINV ETRD BEXP JO|
|Redacted:||This cable was not redacted by Wikileaks.|
This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 001621 SIPDIS USTR FOR SAUMS USDOC 4520/ITA/MAC/ONE/COBERG E.O. 12958: DECL: 03/19/2008 TAGS: EINV, ETRD, BEXP, JO SUBJECT: JORDAN GOVERNMENT DISSOLVES BOARD OF CENTURY INVESTMENTS Classified By: Ambassador Edward W. Gnehm. Reasons 1.5 (b) and (d) 1. (c) Summary. The Jordanian Minister of Industry and Trade has dissolved the Board of the Century Investment Group following accusations of financial and managerial improprieties made by some stockholders. Century is a leading investor in QIZ companies and an outstanding example of business cooperation between Jordan and Israel. Omar Salah, Century's founder, claims that he is being victimized because of his Israeli connection. That allegation cannot be substantiated. The Ambassador has discussed with Minister Bashir his actions against Century and the two important U.S. interests at stake: the impact on U.S. investment in Century (and ultimately the investment climate in Jordan) and the possible negative impact on the QIZ initiative. End Summary. 2. (c) In a decision effective earlier this month, Minister of Trade and Industry Salah al-Bashir dissolved the Board of Directors of Century Investment Group (CIG), a holding company for Qualifying Industrial Zone (QIZ) companies, and called for new board elections to be held on March 23. In the intervening period, a committee of government officials and shareholders' representatives is overseeing the company. According to the committee's head (Amer al-Hadidi, the MOIT's Director General for Industry), the committee's mandate is to arrange the extraordinary board elections and to ensure that the holding company continues to operate on as normal a basis as possible. Management of the joint venture QIZ companies in which Century has invested is not affected by the Minister's decision. --------------------------------------------- ---- Minister al-Bashir: Acted to Protect Shareholders --------------------------------------------- ---- 3. (c) Al-Bashir told the Ambassador on March 12 that he took the step of dissolving CIG's board under the authority of Article 168 of the Companies Law (number 22 of 1997). (There is at least one recent precedent in the dissolution of the board of the Jordan Petroleum Refinery Company in 2002.) According to Bashir, his action was preceded by an investigation by the ministry and an audit of Century's finances conducted by the local Ernst and Young affiliate. Both the investigation and the audit found discrepancies. Article 168 states that in cases "of financial or administrative disorders or serious losses" or if a board of directors and/or management "exploit their powers and position in any manner that achieves for their or another's account any benefit in an illegitimate manner," "the Minister shall... dissolve the Company's board of directors and form a committee... to manage the Company for a period of six months renewable twice... (and) the committee shall invite the General Assembly to elect a new board of directors for the Company." 4. (c) The Minister said he took this step after more than a year of discussions between his Ministry and Omar Salah, the CEO of the company and a leading shareholder. Those discussions failed to resolve complaints by a number of other shareholders about mismanagement of the company. In particular, the complaints alleged that as CEO Salah had made significant decisions without necessary board approval and that there had been bookkeeping improprieties (such as booking capital gains from the sale of assets as current revenue). Salah, he said, agreed in February to call a special board election to resolve the differences. However, Bashir said he acted to dissolve the board when he learned that in a late February board meeting Salah had suggested that his CEO contract be renewed for three years with a large cancellation penalty. Bashir saw this as a blatant attempt by Salah to reap personal windfalls as well as to influence the new board elections. The Minister said he had to act quickly to prevent this from happening. ----------------------------- Omar Salah: Conspiracy Theory ----------------------------- 5. (c) For his part, Omar Salah claims that he is the victim of a political conspiracy of "anti-normalizers" that is punishing him for his pioneering efforts to take advantage of the QIZ initiative and to build business relationships between Jordanian and Israeli companies. He also believes that some officials in the Jordanian government are angered by his efforts to encourage the creation of a USG-financed "enterprise fund" that would invest in Jordan and other countries in the region. Those officials feared that the U.S. might finance such a fund using ESF money that was critical to GOJ priorities. Thus, Salah asserts that the charges against him are either trumped-up or technical transgressions easily corrected through internal adjustments. He strongly denies that he attempted to secure a last minute CEO contract, saying that the idea had been discussed at the board meeting, but dropped for the reason the minister cited (that it not be seen as an attempt to manipulate the election). 6. (c) The Minister asserts that he acted fully and appropriately within the law. On the other hand, Salah believes that Minister Bashir acted inappropriately in invoking Article 168 and should instead have referred the matter to the judicial system, as was the recommendation of one of the internal GOJ committees that first examined the shareholder complaints. Salah claims Bashir is "afraid" to go to court because, before becoming minister, Bashir had been CIG's lawyer and had thus given legal advice on some of the issues in contention. Nevertheless, it is worth noting that Salah has not invoked his own right to take legal action, such as by seeking a court order that would suspend implementation of the minister's decision. (Bashir takes this as proof that Salah knows his claims are baseless.) 7. (c) According to material provided by Salah, the Century Investment Group (CIG) is a holding company formed in 1995 to "capitalize on the peace process dividend." U.S.-source investment in CIG amounts to $2.1 million, or 21% of total investment. Along with foreign partners, CIG has invested in six QIZ companies. The total foreign sales ($112 million in 2002) of these companies accounts for about one-quarter of QIZ exports and their 5,500 employees for about one-quarter of Jordanian employees of QIZ companies. Companies with which CIG has entered into joint venture QIZ partnerships are Clal Ltd., Clal Industries and Investments, and Prudential Capital. Partners with CIG in QIZ companies include Delta Textiles (New York), Bagir International (New York), Standard Textile (Ohio), and two Chinese companies, Paz Chen Jewelry Company and the Tee Yung Group. Salah says that the total U.S.-source investment in the joint ventures amounts to $11.1 million. ------------------------------------- Salah's Allegations do not Hold Water ------------------------------------- 8. (c) The March 23 elections will determine the fate of CIG and whether its founder, Omar Salah, will be able to maintain control of the company. Currently, Salah believes he has the support of 44% of the shareholders, including his family's 16%. The swing vote, he believes, is that of the Social Security Corporation, which holds 6.5% of CIG stock. Salah has asked for the embassy's support to encourage the Social Security Corporation to vote with him. Otherwise, consistent with his assertion of a conspiracy, he believes the SSC and a majority of the shareholders will vote to expel him from the board. 9. (c) The embassy has heard rumors of financial problems within CIG for the past year and a half. (For example, a Pakistani subcontractor of a CIG company recently fled the country with bills unpaid complaining that Century had not paid him for work done on its behalf.) We find it quite likely that Salah is not an effective manager and that there may have indeed been some improprieties. It is difficult for us to judge, though, whether the scope of the sanction imposed by Minister Bashir fits the alleged transgressions, or whether it would have been more appropriate for aggrieved shareholders to find redress in the courts. 10. (c) On its face, Salah's claim that he is being conspired against because of his work with Israel might seem plausible. Upon closer scrutiny, it does not wash. His downfall would no doubt please the so-called "anti-normalizers" -- who oppose Jordan's peace treaty with Israel and Salah's high-profile attempts to build Jordan's economic relationship with Israel. (In fact, Salah says he was once at the top of an anti-normalizer "death list.") In point of fact, however, Salah's main accuser on company management issues is Gen. Ihsan Shurdom (ret.). Shurdom holds about 5.5% of the company and is the antithesis of the anti-normalizer. As a former Chief of the Royal Jordanian Air Force and brother of the current Public Security chief, Gen. Shurdom is widely known as a leading, socially prominent proponent of Jordan's relationship with Israel. 11. (c) The idea that Salah is being punished for his support for an enterprise fund, however, seems more plausible. His solo efforts in Washington and Israel to establish such a fund and, implicitely, a role for himself, definitely alienated several key ministers in the government. The Minister of Foreign Affairs told the Ambassador that Salah's activities had troubled him and the government greatly, but he was adamant that the action taken had a sound basis and was not arbitrary or a result of Salah's efforts to promote an "enterprise fund." --------------------------------------------- ------- Put Focus on U.S. Interests, Not Salah's Personality --------------------------------------------- ------- 12. (c) Omar Salah, the CEO of Century Investment Group, is a prominent young entrepreneur who is well known in the business community. His reputation is that of an active and creative businessman willing to take bold and even risky business decisions. His strong points are an engaging personality, ability to articulate both plans and dreams in extremely appealing terms, and the boldness (mentioned above) to enter into new initiatives. His strong points are often the cause of his difficulties. He is prone to act without close consultation with his partners. The risks that he is willing to face are often beyond the toleration point of others. He is a consummate self-promoter and a manipulator of information to serve his purposes. We have seen this last trait ourselves in recent weeks when he approached the Ambassador for assistance, then decided it would not be helpful to his cause, and asked that we not engage. He then proceeds to contact others to intervene, perhaps knowing that they would not be as conversant as the Embassy with the fine points of the current troubles. In any case, as popular as Salah may be with Americans and Israelis, USG focus should not be on personality but on U.S. interests. 13. (c) In a meeting March 12 with Minister Bashir, the Ambassador focused on U.S. interests at stake: 1) protection of U.S. investments and an overall positive investment climate to support Jordan's continued economic success. The Ambassador pointed out that key to investment confidence was "due process" and the opportunity for current and prospective investors to defend their interests. The Minister needed to clarify to all interested investor parties the basis of his actions and ensure that the rights of all parties were protected. 2) Secondly, it was crucial to protect the reputation of the QIZ's. The QIZ's are very successful; they have established an excellent reputation among U.S. importers for meeting deadlines and providing quality products. There was every reason to expect their success to continue. That success, however, would be severely impacted if government actions against a company, like Century, with such a large QIZ investment, led to QIZ factories to miss delivery deadlines. The Ambassador expressed the hope that the GOJ considered this aspect of the problem when taking action against Century's board. 14. (c) Comment: Century's CEO, Omar Salah, is well known to many Americans and Israelis and is using those contacts to solicit support and interventions. We need to keep the focus of our interventions on the valid U.S. interests described above. Our interests may or may not coincide with Salah's; but our interests are valid and the Embassy will remain engaged to encourage the GOJ to follow due process and transparency in resolving corporate issues. GNEHM
Latest source of this page is cablebrowser-2, released 2011-10-04