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Abu Dhabi, UAETuesday 18 December 2018

Explainer: What now for Abraaj Group?

The private equity firm has yet to sell parts of its business, as its provisional liquidation continues

Abraaj Group founder Arif Naqv. Sarah Dea/The National
Abraaj Group founder Arif Naqv. Sarah Dea/The National

One week after the Abraaj Group founder Arif Naqvi reached an out-of-court settlement with a creditor in a criminal bounced cheque case – reducing the risk of complicating the company’s ongoing restructure – we provide an update on the latest developments.

At what stage is the provisional liquidation?

A judge in the Cayman Islands approved a court-supervised restructure of the private equity firm on June 19, so the process has been under way for more than two months.

Ever since four investors in Abraaj’s $1 billion Growth Markets Health Fund – including the Bill & Melinda Gates Foundation, the World Bank’s International Finance Corporation, the UK’s CDC Group and Proparco Group of France – alleged mismanagement of funds in February and hired Ankura Consulting to find out where their money had gone, Abraaj’s reputation has unravelled.

The key focus for provisional liquidators is to pay down its estimated $1bn of debt by selling funds and other parts of the business. Investigators are trying to find out what happened to investors’ money, with reports of co-mingling funds (taking money allocated for a particular purpose and using it elsewhere) to help Abraaj meet its cashflow needs. Abraaj and its founder Mr Naqvi both deny any wrongdoing.

Who has expressed an interest in buying Abraaj?

Several companies have been named in the media as interested parties in talks to buy the group’s asset management division, Abraaj Investment Management Limited, its funds management business, or stakes in various funds.

These include US asset manager Cerberus Capital Management, which reportedly pulled out of talks to buy AIM in July, York Capital Management, which offered $50 million for AIML and a further $350m to buy Abraaj’s stakes in some of its private equity funds, and Colony Capital, which agreed to buy Abraaj’s Latin America, Sub-Saharan Africa, North Africa and Turkey funds management business in June, but has since reportedly walked away from the deal.

More recently, British emerging market investment firm Actis has bid to buy the bulk of the funds business, while other prospective buyers have included Kuwait’s Agility (with Centerbridge Partners of New York), and Abu Dhabi Financial Group.

What actions have UAE authorities taken?

DIFC Courts appointed provisional liquidators in August to oversee the winding up of Abraaj’s Dubai entity, Abraaj Capital Limited, which is incorporated at the Dubai International Financial Centre free zone. At the same time, DIFC regulator the Dubai Financial Services Authority said following an investigation it restricted the activities ACL is allowed to undertake, including stopping it from securing new clients and initiating new work, or transferring money to other entities such as AIM or other affiliates. “Given the onset of financial difficulties of the wider Abraaj Group, the DFSA has been closely monitoring the activities of ACL,” it said on August 16. “The DFSA has taken regulatory actions to safeguard the interests of investors and the DIFC.” It said it will continue to monitor ACL, which is the only UAE-incorporated division of Abraaj.

The DIFC Gate Building in Dubai. DIFC Courts said it appointed liquidators to oversee the winding up of the DIFC-registered entity of stricken private equity firm Abraaj Group. Jeff Topping / The National
The DIFC Gate Building in Dubai. Jeff Topping / The National

What is happening with Abraaj’s international offices?

Abraaj’s operations span 20 countries across the Middle East, Africa, Europe, Asia and South America. In total it has 20 offices including its Dubai headquarters. A source close to the restructuring told The National the global offices were running “business as usual”, while spokespeople for the joint provisional liquidators at Deloitte refused to comment on Abraaj’s international operations. A DFSA spokeswoman said the regulator has no authority to impose restrictions on any Abraaj operation apart from DIFC-registered ACL, and the other offices are subject to the requirements of their respective jurisdictions.

The National telephoned 15 out of the 20 offices listed on Abraaj’s website. Only three said they were open and operating as normal – Johannesburg in South Africa, Ebene in Mauritius and Nairobi in Kenya. Calls to the other offices went unanswered. (See below)

The National
The National

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Read more:

Abraaj business said to be Actis purchase target

Abraaj restructure on smoother path following bounced cheque settlement

Dubai lenders Mashreq, CBD join FAB in declaring Abraaj exposure

Abraaj posts $188 million loss after using investor funds

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What is the significance of the bounced cheque case?

Mr Naqvi has faced two criminal cases over bounced cheques in the past two months – one for Dh177m and one for Dh798m – both filed by one of his personal creditors, Hamad Jafar, another founding shareholder of Abraaj. Issuing a cheque with insufficient funds can be a criminal offence in the UAE that elicits a jail sentence or fine.

A court in Sharjah dismissed the first case based on notice of a provisional out-of-court settlement between the parties, and the second case was withdrawn in August after lawyers confirmed the settlement had been reached. In both cases, the charges were brought against Mr Naqvi personally, so there was no direct impact on Abraaj’s provisional liquidation, a spokeswoman for the JPLs said.

However, analysts said an ongoing criminal case could inhibit a restructuring process if the founder was unable to participate due to court proceedings. If convicted, there could be regulatory restrictions on that person, Khalid Howladar, managing director of Acreditus has said. Richard Segal, senior analyst at Manulife Asset Management has also said criminal proceedings could complicate the sale of parts of Abraaj’s business by making prospective buyers more cautious.

How big is the scale of corporate financial exposure to Abraaj?

UAE regulator the Securities & Commodities Authority asked UAE-listed companies in June to declare their exposure to Abraaj. By the following month, a string of companies had issued statements on Dubai and Abu Dhabi stock exchanges declaring varying degrees of exposure. To date, 14 firms have declared limited exposure, with Sharjah-based low-cost carrier Air Arabia the worst affected by far, with exposure of $336m, it said. Abraaj has a large pool of stakeholders, but most of the reported exposure is indirect and contained. A total of 57 said they had no exposure to Abraaj. In terms of the possible impact on the region’s private equity market, Manulife’s Mr Segal, said the Abraaj situation would mean “more due diligence and a pause during this adjustment process” across the markets in which the company was investing in.

Timeline of the main events

Feb 2: The New York Times and The Wall Street Journal run articles revealing an investigation into the alleged misappropriation of funds in the $1bn healthcare fund. Abraaj issues a statement on February 4 denying any misappropriation of funds.

Feb 8: Abraaj says a review it commissioned by KPMG found no evidence of misuse of funds. In April, it hires Deloitte to examine its business after investors questioned the KPMG review

Feb 23: Abraaj says Mr Naqvi relinquished control of the firm’s fund management business but will remain CEO of the holding company.

June 7: Kuwait’s Public Institution for Social Security, an unsecured creditor, says it has filed a petition in a Cayman Islands court seeking liquidation of Abraaj Holdings.

June 11: The review by Deloitte shows that Abraaj co-mingled about $95m after it faced cash shortages. No evidence of embezzlement or misappropriation was found.

June 15: Abraaj Holdings seeks Cayman Islands court-supervised restructuring to re-order liabilities and pursue sale of funds management business. The request was approved on June 19, enabling the provisional liquidation to commence.

June 14: Egypt’s Orascom Construction says Abraaj has offloaded its entire stake in the company for $52m.

June 19: Abraaj Group says a Cayman Islands court approved its request for a provisional liquidation of the business, enabling a court-supervised restructuring and protection of stakeholders’ rights. Deloitte

June 20: UAE-listed low-cost carrier Air Arabia says its exposure to Abraaj is $336m.

June 21: Abraaj says it agreed to sell some of its key funds to US-based Colony Capital. The deal had not gone through at the time of publication.

June 23: UAE regulator the Securities & Commodities Authority said to have asked UAE-listed companies to declare their exposure to Abraaj.

June 26: Mr Naqvi faces criminal complaint over a bounced cheque, brought by a creditor Hamid Jafar. Hearing scheduled for June 28 is adjourned.

July 4: DFSA reported to be investigating Abraaj Capital, the group’s Dubai-based entity

July 5: Bounced cheque hearing adjourned again until July 11.

July 10: First companies declare exposure to Abraaj on the Dubai and Abu Dhabi stock exchanges. Over the next fortnight more companies declare exposure or non-exposure. Overall, it is limited.

July 14: Bloomberg, citing an audit report by PwC, says Abraaj posts $188m loss after using investor funds

July 15: Sharjah court dismisses bounced cheque case following notification of provisional out-of-court settlement between Mr Naqvi and Mr Jafar.

July 21: Cerberus Capital said to walk away from its offer to buy Abraaj funds business, while York Capital said to be waiting in the wings

July 31: Mr Naqvi faces second bounced cheque case from Mr Jafar.

August 14: Court adjourns second bounced cheque case until August 26, when the case is again adjourned until August 28

August 15: DIFC Courts appoints liquidators to wind up Abraaj Capital in Dubai

August 16: DFSA says places restrictions on Abraaj Capital’s operating activities.

August 28: Lawyers for Mr Naqvi and Mr Jafar say out-of-court settlement reached. Bounced cheque case withdrawn and request lodged to lift arrest warrant on Mr Naqvi.

August 30: UK-based Actis said to bid for the bulk of Abraaj’s funds management business. Other suitors circle firm.