Abraaj Facing BCCI Scenario, Files For Provisional Liquidation in Cayman Islands
JUN 14, 2018 — Abraaj, the Middle East’s biggest private equity firm which made its mark investing in high risk regions including Iran and Pakistan, has filed a petition in the Cayman Islands, asking the court to appoint PwC as provisional liquidators for the embattled company.
“The appointment of provisional liquidators imposes a moratorium on the enforcement of all unsecured claims against the company, allowing time for a proposal to be put to creditors for the orderly restructuring of the company,” it said in a statement.
The move is to thwart separate legal action by the Kuwait Public Institution for Social Security (PIFSS) and another creditor, who are seeking the liquidation and winding up of Abraaj for non-payment of $100m debt and $7 million in interest.
The people close to Abraaj Group’s management said the element of hatred among the Arabs against the Abraaj was the reason behind recent financial troubles. Before the Kuwati Fund, a Saudi investor also pulled out its investment, according to them.
According to a story published by The Wall Street Journal last week, the Kuwait fund would also not go along with other creditors in giving Abraaj more time to restructure its debts.
Dubai-based Abraaj has been trying to stem the fallout from a row with four other investors also, including the Bill & Melinda Gates Foundation and International Finance Corp (IFC), over how it used their money in a $1 billion healthcare fund.
Abraaj has denied it misused the funds and ordered forensic audit.
An inordinate delay in finalization of the $1.77-billion K-Electric deal affected Abraaj’s business, says media reports.
People close to the Abraaj Group said the group’s founder blamed Pakistan’s bureaucracy for some of its financial woes. The group was expecting to get half of the $1.77 billion worth of sale proceeds from the sale of its shares in Karachi utility company, the K-Electric.
However, the deal has remained stuck for the last almost two years due to delay in issuance of a national security clearance certificate by the Privatization Commission. The commission has withheld the certificate because of non-settlement of dues of over $1 billion on account of gas and electricity supply to K-Electric. Due to Abraaj’s liquidation process seeking restructuring, the K-Electric “receivables from assets sale” will remain subject to bankruptcy court’s jurisdictions.
The Abraaj Group owns 66.4% equity stakes in K-Electric through KES Power. It had announced to sell its stakes to Shanghai Electric Power. The Abraaj Group says that K-Electric was the going concern and the prospective buyer was ready to take ownership of liabilities to the extent of its shareholding. However, the buyer and the seller have not been able to secure the regulatory approvals.
Abraaj’s founder Arif Naqvi, 57, founded Abraaj with $60 million in 2002 and built it into an emerging market champion with assets of $13.6 billion at its peak before the row forced the firm to suspend a new fund and shakeup its management.
Insiders say the firm has been facing and overcoming challenges amid regional and global bias in the vast financial club dominated by others, and “had become one of the developing world’s most influential investors”, according to Bloomberg, and once managed almost $14 billion for institutions and supranational agencies from the U.S., U.K. and other countries.
A court-appointed provisional liquidator will help safeguard the assets of the company until a wind-up application is heard by the court.
Naqvi said in a statement this process marks the culmination of an extremely complex and challenging phase of negotiations and detailed planning.
“Since our differences with certain investors first came to light, we have worked exhaustively and transparently to investigate the matter and address their concerns, all the while ensuring our tremendous investment teams around the world continue to support the growth of our partner companies,” he said.
Abraaj, with debts estimated at over $1 billion, met its creditors earlier this month to reach a standstill deal, which the firm said was backed by the vast majority of its lenders, to facilitate the sale of its investment management business to Cerberus.
However the Kuwaiti fund, an unsecured creditor, refused to join secured creditors in the proposed debt freeze agreement.
In another legal challenge to Abraaj, a little known creditor of Abraaj also started legal proceedings in the Cayman Islands seeking the restructuring of the private equity firm’s liabilities.
Before the Abraaj Group, the Bank of Credit and Commerce International (BCCI) was another international bank founded in 1972 by Agha Hasan Abedi, a Pakistani financier. The BCCI was also pulled down by Europeans and Arabs. There were also allegations that the BCCI was involved in money laundering. The bank was also heavily involved in money transactions related to the US-led Afghan War (1979-1988), several observers said.
Abraaj sold its entire 5.4 percent stake in Egypt’s Orascom Construction Ltd. at $8.30 per share, according to a statement on Nasdaq Dubai on Thursday. The value of the stake is $52 million, Bloomberg reported.
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