x Abu Dhabi, UAEThursday 27 July 2017

Kuwaiti firm sues US fund manager

Kuwait's National Industries Group has filed a lawsuit against a division of the US private equity firm Carlyle Group over a US$25 million investment loss.

Kuwait's National Industries Group has filed a lawsuit against a division of the US private equity firm Carlyle Group over a US$25 million (Dh91.8m) investment loss. The conglomerate made the move after "exhausting all amicable means" with Carlyle Capital, a unit of the Carlyle Group based in Washington, DC, National Industries said.

It said it had taken provisions to cover the $25m loss last year and it would have no effect on the company's results for this year. "The group has filed a lawsuit against the aforementioned company after exhausting all amicable means with it," National Industries said. "The offers presented by Carlyle to compensate for the group's losses were not satisfactory." If the lawsuit was successful, any compensation would be added to the company's future profits, it said.

Carlyle Capital was a public-debt fund that collapsed in March last year after defaulting on about $16.6 billion of debt. It became a victim of the US subprime mortgage crisis when losses in the mortgage market led to several of the fund's lenders declaring it in default on its loans. The UK's Financial Times on Monday reported that National Industries was suing Carlyle in the US, alleging that Carlyle had misrepresented the safety of the fund.

National Industries invested $50m in Carlyle Capital, which was promoted to many investors in other Carlyle funds as a safe fund that would invest mainly in "triple A" mortgage-backed securities, the newspaper said. National Industries, which was listed on the Kuwait Stock Exchange in 1984, began as a building materials maker before diversifying into investment in petrochemicals, oil and gas services, mechanical industries, utilities, property and financial services.

National Industries is not the first Gulf investor to file a lawsuit against a US company in connection with an ill-fated investment in subprime mortgages. A US court in September told the financial services giant Morgan Stanley and credit rating agencies Moody's Investors Service and Standard & Poor's Ratings Services that they must defend fraud charges brought by Abu Dhabi Commercial Bank (ADCB) over investments linked to subprime mortgages that eventually failed.

ADCB alleged the trio masked the risks of the investments. ADCB was one of the first Gulf banks to report subprime losses, writing down $19m in the third quarter of 2007. @Email:tarnold@thenational.ae