First A Savior, Now a Suspect

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Only a few months ago, the British government turned to Kuwait as a savior. Under Prime Minister Margaret Thatcher's grand privatization plan, the government had been ready last October to sell its 32% stake in British Petroleum to the public. Then stock markets around the world crashed. Since the BP shares had been priced far above their postcollapse market value, it seemed certain that few investors would buy them. Enter the Kuwait Investment Office, the London-based agency of Kuwait's Finance Ministry that handles the bulk of the Arab country's overseas holdings. Beginning in early November, the Kuwaitis started to buy BP stock in large amounts and singlehandedly salvaged the offering.

These days, though, 10 Downing Street must be wondering if the Kuwait Investment Office is friend or foe. Reason: the Kuwaitis are still buying BP shares -- with an enthusiasm that has raised suspicions in Britain. Kuwait has spent some $1.9 billion, bringing its stake in British Petroleum up to 22%, to become BP's largest shareholder. The Kuwaitis insist that they will not seek a seat on BP's board. They initially promised not to raise their stake above 22.5%, but Fauad Jaffar, deputy chairman of KIO, seemed to waffle on that pledge during a recent television interview. Said he: "If the situation changes, obviously any investor must have an open mind."

Was that a veiled takeover threat? Probably not, since the Kuwaitis know that the British government could thwart any foreign bid for control of BP by simply ruling that such a sale would be against the public interest. BP executives are nonetheless distressed at the size of Kuwait's stake in the company: not only could the Kuwaitis easily change their minds about seeking a role in management but they could also sell their stock to any corporate raider interested in BP.

Neil Kinnock, the leader of the opposition Labor Party, last week challenged Thatcher's decision to go along with Kuwait's investment, noting the Prime Minister's statement three months ago that the Kuwaitis had assured Britain they "had no ambition to control BP, nor any interest in any management role." The Labor leader questioned how binding those assurances really were. Said he: "This is obviously a matter of public interest and concern."

Kuwait's BP stock is the latest addition to one of the world's most diversified investment portfolios. Unlike Saudi Arabia, which has poured many of its petrodollars into grand domestic projects, Kuwait has invested most of its income overseas. The country holds $85 billion worth of stocks, bonds and real estate in the U.S. and Europe. Kuwait's overseas holdings provided a comfortable cushion when petroleum prices collapsed two years ago; in fact, the country earns more from investments than from oil exports.

In the U.S., the Kuwaitis own Santa Fe International, a leading oil-drilling company; the Atlanta Hilton hotel; and a controlling interest in the Dallas Galleria, a glittering complex of shops, offices and a hotel. The Kuwaitis are more visible in Europe. They own billions of dollars worth of British stocks, including 15% of the Royal Bank of Scotland and 5% of Trusthouse Forte, a leading hotel chain. On the Continent, Kuwait has invested more than $2 billion in Spanish companies. In West Germany, Kuwait owns 20% of Metallgesellschaft, a mining, metals and plastics company, and 14% of Daimler- Benz, the car manufacturer.