Question marks over Newcastle United’s Profitable suitor

After much confusion over the last few days, Singapore-based Profitable Group has finally confirmed its interest in acquiring Newcastle United.

But, despite Profitable’s ambition to be “internationally recognised as a premier provider of Strategic Global Investment”, the group is arguably a long way off that goal.

Profitable is heavily involved in controversial real estate investment schemes that critics describe as “land-banking” and its Malaysian subsidiary (Profitable Plots Sdn Bhd) is currently under investigation by the Malaysian Companies Commission following a raid on its offices in October.

A UK subsidiary, The Profitable Plot Company, was voluntarily liquidated in 2007 after failing to “turn a penny”, according to the group’s chief executive John Gaunt.

However, he insisted that Profitable’s investment schemes do not amount to land-banking and denied any wrongdoing.

Land-banking schemes involve companies buying up greenfield sites in the UK, splitting up the land into small parcels and then selling them on to investors at a premium based on the hope that they can obtain planning permission for large-scale developments and eventually flog the land to developers for a substantial profit.

But councils very rarely grant planning permission for developments on Green Belt land and without this, it is very difficult for investors to recoup their initial outlay.

While Profitable’s approach appears very similar, Gaunt insisted that it was “not fair” to describe Profitable’s investment schemes as land-banking because their investors own the title to their real estate outright.

Land-banking is not illegal in the UK but the Financial Services Authority has warned that "there is a risk that many of these schemes are in breach of the financial regulation regime" and it launched a crackdown in 2007.

Like other such companies, Profitable targets investors in Singapore and Malaysia, many of whom view UK land as a prized asset, and often promises spectacular rates of return. An advert run by the Profitable Group on national TV in Singapore last October claimed that it could generate "estimated returns" of 250% over three years for investors who put in £8,000.

Regulators around the world have grown increasingly concerned about land-banking in recent years and Profitable Plots’ Kuala Lumpur office was raided by the Malaysia Companies Commission in October as part of a wider investigation into possible breaches of Malaysian corporate law by real estate investment companies.

An official from the Malaysian Companies Commission confirmed to me yesterday that Profitable is still under investigation following the raid. However, Gaunt told me last night that he had taken the Commission to court over its behaviour toward the company.

“They were of the opinion that we were a collective scheme – but we aren’t because we sold freehold title,” he claimed. “If you buy land from us, you get the title. We’ve had a court hearing and we’re awaiting judgement. We’ve had no contact with them for a sustained period of time.”

Although many of its land investment schemes are based in the UK – in places such as Hounslow and Colchester – Gaunt says that Profitable no longer takes on British investors after its UK subsidiary was voluntarily wound up.

“We don’t take UK business,” he said. “The business regulations in the UK and the manner in which the UK is structured are not conducive to doing business – it’s easier to do business elsewhere.”

A number of consumer websites (and The Guardian’s consumer champion Tony Levene) have warned investors against putting their money into schemes run by Profitable, but Gaunt claimed that “complaints are invariably made by some anonymous person writing under a nom de plume”.

“Show me one person that has lost money with us,” he added. “No-one has lost money. If there was anything illegal about our schemes, one of the most regulated societies in world, Singapore, would have closed us down long ago.”