The Foreign Office intervened to “soften” the language used by the Culture Secretary in a letter to the fund which is attempting to take over The Telegraph, amid fear of giving offence to its Abu Dhabi backer.
It is understood that officials worried that the language could offend the United Arab Emirates (UAE) ahead of a London summit for foreign investors next week and Rishi Sunak’s trip to the Gulf the following week for the Cop28 climate conference.
The Foreign Office intervention highlights the diplomatic and political risks for Mr Sunak in Abu Dhabi’s attempt to gain ownership of The Telegraph. The UAE is among the biggest foreign investors in the UK at a time when overseas capital is badly needed to drive growth.
However, the prospect of what would be viewed as ownership of The Telegraph by an autocratic foreign state has alarmed many Conservatives.
The Culture Secretary wrote to the fund at the centre of the controversy, RedBird IMI, on Wednesday. Lucy Frazer said that she was minded to issue a Public Interest Intervention Notice (PIIN) and trigger regulatory scrutiny of its plan to acquire The Telegraph, and its potential impact on the UK media landscape.
A PIIN is the first stage of a process that can take several months and lead to the takeover of a news outlet being blocked over the needs for accurate presentation of news and free expression of opinion. Regulations are also in place to ensure a sufficient plurality of views and owners.
In her letter, Ms Frazer said she was “aware that RedBird IMI have links to media organisations that have been critiqued for partisan views” and that it is part-owned by a member of the UAE government. She made no reference to the non-democratic governance and media censorship of the oil-rich state.
Sources involved in discussions between the Government and RedBird IMI speculated that the PIIN could be issued as soon as Friday. Ms Frazer has 10 days to make her decision, but swift action would pass immediate questions to the media regulator Ofcom and distance her and Mr Sunak from a proposed deal which has drawn heavy fire from across Fleet Street.
The move threatens to derail a complex £1.2bn deal between RedBird IMI, The Telegraph’s former owners the Barclay family, and Lloyds Banking Group.
The bank seized control of The Telegraph and The Spectator magazine in June by sending in receivers. The Barclay family had failed to repay £1.2bn in loans secured against the media assets. Now they intend to end the receivership by borrowing the full amount in two tranches sourced from Abu Dhabi.
RedBird IMI, a joint venture between a US private equity firm and the Emirati regime’s media vehicle, International Media Investments, would provide £600m secured against The Telegraph and The Spectator. That loan would be immediately converted into ownership. The balance of the debt would be provided directly by IMI to the Barclay family and secured against their other businesses, such as the online retailer Very.
IMI is owned by Mansour bin Zayed Al-Nahyan, vice-president of the UAE and a member of its ruling family.
The structure of the deal has prompted claims that Abu Dhabi is effectively paying £1.2bn for The Telegraph, roughly double its expected price in a competitive auction that has been paused. It is understood that its loan secured against Very would rank behind borrowing from the US investor Carlyle, and therefore be at higher-risk of being wiped out in an insolvency.
If Ms Frazer chooses to issue a PIIN in relation to the receivership, the first stage of the transaction, the whole deal could quickly unravel. The Barclay family have only until 1 December to make good on their borrowing from Lloyds, after which the bank would be forced to restart the auction.
It has attracted interest from bidders including a consortium led by the Brexiteer hedge fund chief Sir Paul Marshall, the publisher of The Daily Mail, and National World, a local newspaper group.
They are arguing forcefully for the Abu Dhabi plan to be stopped. Sir Paul’s lobbyists have been rallying support from backbench Tories to put pressure on ministers.
Meanwhile Lloyds, which is at risk of missing out on hundreds of millions of pounds, has warned officials against issuing a PIIN in relation to the first stage of the transaction as it would anger powerful shareholders, prompting allegations of threats.
Andrew Walton, the bank’s chief lobbyist, told The Telegraph that “it was not a threat but it was a very clear warning”.
Lloyds, RedBird IMI and the Barclay family replied on Thursday to Ms Frazer before a 3pm deadline. Officials refused to release the letters, citing commercial confidentiality.
There were signs of frustrations within the process, however, as Lloyds and RedBird IMI issued a joint response, even though the bank has no direct relationship in the planned transaction with the Abu-Dhabi-backed investor. Meanwhile, the Barclay family replied separately.
Sources close to the discussions said the family had failed to “engage on the substantive issues raised” but that the trio were aligned on the deal.
A spokesman for the Department for Digital, Culture, Media and Sport declined to comment. A Foreign Office spokesman said: “It is standard practice for the Foreign Office to provide advice to other UK government departments when engaging with governments overseas.”
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