Paul Taylor, who runs the Qatari wealth fund stalking the supermarket, has an appetite for high-risk deals writes Helen Power

As Paul taylor Tdges closer to buying J Sainsbury, details of his previous Qatari-backed buyouts have emerged, revealing a man addicted to financial wizardry and debt.

The supermarket's board opened the books to Taylor's Qatari-state funded investment vehicle, Delta Two, last Thursday after Taylor bowed to demands from the board and the Sainsbury family to reduce the amount of debt in the bid.

But Taylor has a proven appetite for financial risk. When the Qataris bought Four Seasons Healthcare, a 440-site nursing home, elderly care and specialist mental health-care operator last year, the buyout used a financial structure that was daring even by pre-credit crunch standards. An analysis of that deal reveals that the Qatari-backed fund risked very little of its own money in the investment.

The Qataris bought Four Seasons from Allianz Capital Partners, borrowing a whopping 14 times as much as the company's turnover from Credit Suisse to fund the acquisition. Sources say the Qataris then put in as little as £50m of their own money.

Allianz provided an additional £70m of equity in the form of so-called vendor loans which were -initially intended to be repaid by the Qataris but were instead subsumed into Credit Suisse's loan.

Property entrepreneurs such as Robert Tchenguiz and his brother Vincent, with whom Taylor cut his teeth in the investment business, have made fortunes by gambling on the property market with vast sums of borrowed money supported by comparatively tiny sums of their own.

But in a corporate buyout such a small investment by the acquirer is unusual.

The Credit Suisse loan had a further layer of risky debt on top of it, secured on Four Seasons property assets.

Allianz had already done a sale and leaseback on much of the nursing home chain's property portfolio since buying it from another private equity fund, Alchemy, in 2004. The Qataris were at one stage understood to be considering a further sale and leaseback that would have added around £150m more of debt to the business.

It is thought it then decided to take a -gamble on the property market and keep hold of the assets, believing prices would rise. Instead they turned to the Royal Bank of Scotland's specialist property lending team and raised a £130m financial instrument, a so-called mezzanine loan, secured on the properties. One City source says the Qataris pay interest on the loan at a rate of 23 per cent a year. Interest on the loan rolls up for the two years, then becomes immediately payable.

City sources claim RBS originally intended to sell on part of the debt to spread its risk, but was unable to do so. One source claimed the bank had asked the Qataris to put more equity into the business because it is -worried about its investment, but sources close to the bank deny this.

However, in recognition that it is an unusually risky investment for the bank, RBS has a seat on Four Seasons board. This is almost unheard of in other leveraged buyouts, although a similar provision was made for Citadel, Och-Ziff and Perry Capital, the hedge funds who provided the riskiest bit of the debt on Malcolm Glazer's buyout of Manchester United.

Delta Two changed the terms of its financing on the Sainsbury buyout after family insisted on it and the board refused to open its books until the Qataris brought down the amount of debt in the structure. The main obstacle to a deal now is the Sainsbury's pension fund trustees with whom the Qataris must reach a deal on the supermarket group's deficit before the board will recommend their offer.

However, the Sainsbury family, who will not necessarily vote as a block but between them hold around 18 per cent of the com-pany's shares, has yet to see the complete details of the new financial structure, or give it their seal of approval. And last night the Sainsbury family reiterated to The Sunday Telegraph that they must be convinced a deal is in the best interests of the business and its pension fund members before they sign off on it.

Delta Two will have meetings with both the family and the trustees this week to give them more details of the finance structure and negotiate an agreement on the pension black hole.

It is difficult to penetrate the financing structure on details that are publicly avail-able. The Qataris say they have increased the amount of equity, which is in the form of shares provided by the government of the oil-rich state by £850,000. But under another construction they have just twiddled the distribution of debt between preference shares and a more risky PIK note (an elaborate debt instrument) to ensure they are actually putting in just £250m more.

The rest of the funding will come from Dresdner Kleinwort and Credit Suisse – who are also financial advisers on the deal – and ABN Amro, but this debt will not attract a state guarantee.

Taylor must now convince the Sainsbury family and their advisers that this is enough in order to get at least some of the holders of that 18 per cent stake on his side. He has met family members privately on several occasions, but keeps a very low public profile to the extent that he once asked his chauffeur to pretend to be him to avoid being photographed.

Yet south London boy Taylor, who hired one of the biggest yachts in attendance at this year's Mipim property festival in the south of France and is addicted to expensive cars such as Bentleys, is a colourful character.

At school he was in a remedial class called Three Delta, after which he named his advisory business, which counsels the Qataris' Delta funds. The name was intended as a joke on the class teacher who frequently said Three Delta would never amount to anything. After a brief spell as a bricklayer, he joined the Royal Bank of Scotland's corporate loans group before ending up at Rotch, the Tchenguiz's property company where he met the Qatari state investment fund, who were clients of Vincent Tchenguiz.

Taylor, much to the chagrin of Vincent, then left with the Qataris in tow to set up Delta Three, where he also hired former Tory Treasury minister David Mellor for his middle east connections.

No one knows quite what he is worth today, but one source said: "He is on a very generous incentive programme from the Qataris. And I mean very."



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