Abraaj seeks provisional liquidation

ISLAMABAD: The beleaguered Abraaj Group has filed an application for provisional liquidation in the Grand Court of Cayman Islands, where in Kuwait’s Social Security Fund on May 22 filed petition seeking to force into bankruptcy proceeding.

The Abraaj in a strategic decision has filed the application for provisional liquidation in the Grand Court to give it greater control over its restructuring.

By entering into this voluntary process, under the supervision of the court, Abraaj believes that the rights of all stakeholders can be protected through an orderly restructuring enabling the maximum value to be realised and the Group’s obligation to be met.

In parallel, Abraaj also received strong interest from potential acquirers for the operations of fund management Business, Abraaj Investment Management Limited (AIML). “Talks are at an advanced stage and it continues to work together to achieve the most effective outcome for the firm,” top management of Abraaj said.

The Abraaj Group, a private-equity firm based in Dubai, was riding high some months before, but it is facing massive fall.

Arif Naqvi, a proud Pakistani lifted the Abraaj Group in 2002 from the scratch with investment of $60 million to new high with $13.6 billion deployment in 16 years long journey, but unfortunately, in February 2018, the agonies of the Group started when it got embattled by the investors and creditors who showered discontent on the equity firm over alleged misuse of money in $1 billion healthcare fund.

Abraaj’s troubles first emerged when four healthcare fund investors, including the World Bank’s International Finance Corporation, questioned Abraaj about money that had been drawn down but not deployed, prompting concerns that their funds were misused. After talks, Abraaj returned the money with interest. Abraaj’s auditor, KPMG, exonerated the company, saying it had followed agreed-upon procedures. This report fuelled the concerns of investors, who are awaiting the final results of their own audit carried out by Ankura Consulting. The embattled Dubai-based group has since admitted to drawing on investors’ funds for “general corporate purposes”, albeit within the terms of the fund agreement, people close to the company say. The admission has fuelled anger among some of its investors, especially arms of governments and development financial institutions.

However, later on, a forensic review of two funds at equity firm carried out by Deloitte clearly absolves the Abraaj Group from the allegation of misuse of funds, saying that there is no evidence of embezzlement/or misappropriation in the course of review.

The audit found that this money had been accounted for as a receivable from Abraaj’s asset management arm.

Deloitte, the audit firm, newly hired by Abraaj, also confirmed in its forensic review that all money has been accounted for and no money is missing and it all has been communicated to the creditors. However, the forensic review also pinpointed that the emerging markets specialist suffered from a “lack of adequate governance, including segregation of duties, and the overall weakness in the control framework”.

The audit firm also makes reference to delays in Abraaj’s 2016 transaction to sell its stake in Karachi’s electricity company to a Chinese utility. The auditor said there had been commingling of fund money with Abraaj’s own money in the healthcare fund and Abraaj’s fourth buyout fund.

Deloitte, which has also carried out a corporate governance review at the group, confirmed there is $95m of commingled money that Abraaj has to pay back to its fourth buyout fund.

However, given the situation, Abraaj management told The News, when asked as to what will be the impact of ongoing crisis in Abraaj Group on possible K-Electric sale to Chinese Shanghai Electric Power Company at $1.7 billion, saying that the stakes in K-Electric are held by Abraaj Holdings, an Abraaj-managed fund and stakeholders.

It said that potential investors would work closely with Abraaj Holdings to ensure that the sale of K-Electric can be concluded as expeditiously as possible. The rationale of the sale to Shanghai Electric Power Company is fully recognised and endorsed by potential acquirers who would provide their full support in arriving a positive outcome.

“Any change in the ownership of Abraaj Investment Management Limited will not have any impact on the ongoing discussions between Abraaj Holdings and Shanghai Electric Power Company.”

About the crisis, Abraaj Group is currently facing, the management spoke its mind and narrated its side of the story, saying that Abraaj was founded in 2002 in Dubai by Arif Naqvi with $ 60 million in assets under management. The firm was founded on the belief that it is possible to achieve commercially strong return for investors while creating long-term and sustainable impact in the community. The markets in which Abraaj invests are fast growing and at times, overlooked, but collectively represent the biggest the consumer opportunity for investors.

Abraaj continues, it said, to be acknowledged as the most celebrated private equity firm in emerging markets. The firm has never sought to standstill. Over the past 16 years, it expanded from its early beginnings in the MENASA (Middle East North Africa and South Asia) region through the organic growth and strategic acquisition to create a true pan-growth markets platform spanning 17 offices from Lima to Lagos to Singapore. It expanded its mandate from private equity to alternative asset management with a focus on impact investing, real estate and credit.

At the same time that the firm, it recalled, was expanding its regional and thematic mandate, its investor base diversified dramatically where it moved from managing primarily family office funds to being the steward of DFI (Development Financing Institutions) and institutional investor capital. Over the years the firm successfully raised the series of private equity funds which of late were regionally focused.

It said these funds (sub-Saharan Africa, North Africa, Turkey, Latin America and South East Asia) are deploying investor capital into mid-market businesses that are focused on meeting growing consumers demand — be that in health care, education, infrastructure, fast moving consumer goods, e-commerce, and financial services.

In 2016, the firm raised a $1 billion healthcare fund with a mandate to create an affordable and accessible healthcare systems for low and middle income communities in South Asia (Pakistan, India) and Sub Saharan Africa (Kenya, Nigeria).

In parallel, the firm, management told, is continuing its discussion on the sale of the fund management business and talks are at an advanced stage. Potential acquirers, of which there are a number, are engaging with regional and international stakeholders and the firm is jointly working towards achieving a positive outcome.