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Abu Dhabi, UAESunday 24 June 2018

Kuwaiti creditor seeks Abraaj liquidation in Cayman court

The move by Kuwait’s Public Institution for Social Security risks complicating ongoing restructuring negotiations

Abraaj Group chief executive Arif Naqvi is overseeing a restructuring of the stricken private equity firm, which is facing allegations of misuse of investors' funds. In the past week, one of its creditors, the Kuwait-based Public Institution for Social Security, filed a request to liquidate the company in the Grand Court of the Cayman Islands, where Abraaj is registered. A hearing is scheduled for 29 June. Courtesy of World Economic Forum
Abraaj Group chief executive Arif Naqvi is overseeing a restructuring of the stricken private equity firm, which is facing allegations of misuse of investors' funds. In the past week, one of its creditors, the Kuwait-based Public Institution for Social Security, filed a request to liquidate the company in the Grand Court of the Cayman Islands, where Abraaj is registered. A hearing is scheduled for 29 June. Courtesy of World Economic Forum

One of the creditors of Abraaj Group, the buyout firm facing allegations of misusing investors’ funds, has filed a petition in a Cayman Islands court seeking liquidation of the company – a move that threatens to disrupt debt standstill talks with other Abraaj creditors and its bid to sell part of its business. Kuwait’s Public Institution for Social Security (PIFSS), an unsecured creditor of Abraaj, on June 6 filed the petition in the Grand Court of the Cayman Islands, where Abraaj Holdings is registered, according to a notice in the Cayman Gazette, which lists legal cases. A secured creditor is a lender or creditor that extends capital or is associated with an investment that is backed by collateral.

“The funds invested in Abraaj Holdings belong to the hard working people of Kuwait who have entrusted us to invest their monthly savings so that they can retire comfortably when they decide to," said PIFSS director general Hamad Al Humaidhi in a statement. "We have a legal, fiduciary, and an ethical responsibility to see this case through till the end and return these funds, and secure the best possible outcome for our subscribers and pensioners."

The PIFSS decision to file the petition follows Abraaj's default of a $100 million loan that was due on June 3. PIFSS, which started its relationship with Abraaj in 2004 and by 2013 had made $731.8m in investments and loans to the firm, has since gotten back $346.2m from the private equity company.

Abraaj, the biggest Middle East private equity firm, is in talks for a credit freeze agreement with its secured creditors, however, the court proceeding may create problems for the company.

“The hearing raises the prospect of a court-ordered liquidation regardless of the consensual standstill agreement with other creditors,” said Khalid Howladar, managing director of credit and sukuk advisory Acreditus.

Abraaj acknowledged the filing in an emailed statement on Thursday. “We are aware of the filing in the Cayman Islands by a single creditor and we continue to engage closely with them to reach a consensual outcome for the benefit of all parties,” the statement said.

The Middle East’s biggest buyout company, which at its peak had more than $13.6 billion (Dh49.96bn) of assets under management, is reeling from allegations of misusing funds in a healthcare investment vehicle that deployed capital from investors including the Bill & Melinda Gates Foundation, the World Bank’s International Finance Corporation, the UK’s CDC Group and Proparco Group of France.

The Wall Street Journal and The New York Times in February claimed around 24 investors in the $1bn Abraaj Growth Markets Health Fund had hired investigators to find out what had happened to some of the money invested in the fund. Abraaj denies any wrongdoing.

The allegations have snowballed since then and the group is trying to reorganise its business, and sell its funds management unit along with its stakes in other companies to resolve liquidity issues. New York-based Cerberus Capital Management is among the potential buyers, according to reports.

Abraaj met key stakeholders and creditors on Monday to discuss the potential sale and debt restructuring and said it was pleased with the outcome. “Secured creditors are expected to imminently conclude a standstill which will provide Abraaj the ability to meet its obligations in an orderly fashion,” the group said in a statement at the time.

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Read more:

Abraaj expects to reach debt standstill deal with secured creditors 'imminently'

Abraaj meets shareholders and creditors to allay concerns

Abraaj's Naqvi relinquishes control of funds business in major organisational shakeup

Abraaj says KPMG review finds no evidence of fund misuse

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However, PIFSS’s liquidation request threatens the ongoing negotiations.

“Such a prospect would make any asset-sale negotiations much more difficult until the hearing is concluded,” said Mr Howladar. “No doubt the shareholders and (standstill) creditors will argue that a liquidation is not in their best interests.”

Cleary Gottlieb Steen & Hamilton, is acting on behalf of PIFSS. There is a seven working day period between the date on which a party files a claim, and when the claim is published, meaning PIFSS filed the petition around May 29, before the creditors meeting took place on Monday.

Abraaj said it is “continuing to work intensively and collaboratively with all of its stakeholders to resolve outstanding obligations”, and added that talks to sell the funds management business are at an advanced stage.

“Potential acquirers are engaging with key regional and international stakeholders and we are jointly working towards achieving a positive outcome,” the company said in Thursday's statement.

The interest of investors, creditors, and broader stakeholders is “paramount” as it explores options to maintain the stability and continuity of the firm.

“We are laser-focused on concluding the standstill agreement with our creditors, the vast majority of whom recognise and endorse the commercial rationale and collective financial benefit of such an approach, to ensure that maximum value is realised by each party,” the statement said.

Abraaj has started preparations to apply for provisional liquidation, in which a court appoints a liquidator on a provisional basis before hearing or ruling on a petition to wind up a company, according to a Reuters report.