Abraaj files for restructuring

It caps a remarkable fall from grace for the Middle East-headquartered private equity firm, which has $13.6 billion in assets under management and targets growth markets in Asia and other regions. Arif Naqvi, Abraaj’s founder, said in a statement that the past four months had been “humbling, exhausting and testing.”

The application to appoint liquidators – made to a Cayman Islands court – is intended to allow time for a proposal to be put before creditors for a restructuring that stops Abraaj Holdings collapsing. Abraaj Holdings is the parent company of fund management unit Abraaj Investment Management (AIML).  

Bloomberg reported that the Jafar family of the United Arab Emirates had transferred a loan to Auctus Fund, a specialist credit investor, which had, in turn, commenced legal proceedings aimed at recovering some capital. Abraaj defaulted on the debt in February. Kuwait’s Public Institution for Social Security earlier filed a petition to liquidate Abraaj Holdings following another default.

The firm’s liquidity issues have been aggravated in part by a failure to exit Pakistan’s K-Electric. An agreement was reached in October 2016 to sell a 66.4% stake to Shanghai Electric Power, a subsidiary of China’s State Power Investment Corporation, for $1.77 billion. However, the deal has yet to receive regulatory approval.

Abraaj’s problems began when four LPs – The Bill & Melinda Gates Foundation, the International Finance Corporation (IFC), CDC Group, and Proparco Group – asked a consultant to audit the $1 billion Abraaj Growth Markets Health Fund because capital was drawn down and not deployed within the agreed timeframe. They were not satisfied with the GP’s earlier response on the matter.

Abraaj said it had not violated the terms of the limited partnership agreement, which allowed for called capital to be retained in situations where an investment is delayed but not canceled. The firm added that some capital was not used as quickly as anticipated due to unforeseen political and regulatory developments in several markets. Unused capital was returned to LPs in December 2017.

KMPG was then appointed by Abraaj to review the fund accounts and found no irregularities. Investors questioned the review and Deloitte was brought in to conduct another. Its conclusion, reportedly shown to creditors last week, was that Abraaj comingled $94.6 million by borrowing from the healthcare fund to cover costs linked to a second vehicle. There was no evidence of embezzlement or misappropriation.

In late February, after the existence of the initial LP-driven audit was made public, AIML was separated from AbraaJ Holdings and Naqvi stepped back from the business while remaining CEO of the holding company. Less than a fortnight later, Abraaj started releasing investors from commitments to its latest flagship fund, which achieved a first close of $3 billion last year.

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• Topics
• South Asia
• Southeast Asia
• MENA
• GPs
• Regulation
• The Abraaj Group