Abraaj posts US$188mil loss after using investor funds

NEW YORK: Abraaj Holdings had an “unusual” business model reliant on short-term borrowing, and key financial statements are missing or non-existent, according to one of the firms tasked with salvaging the Dubaibased private-equity firm’s assets.

In a report seen by Bloomberg News, PricewaterhouseCoopers (PwC) said it has “been unable to obtain standalone annual financial statements or management accounts for the company.”

It noted “multiple layers of leverage” as the company borrowed to offset a “long-running liquidity shortfall between the investment management fees and operating expenses.”

This is “an unusual practice for a structure operating in a private equity capacity,” PwC said. “It creates a highly unstable business model, sensitive to volatility and potential liquidity crises, particularly where the cost base cannot be funded by ongoing revenues,” according to the report, which was filed to a Cayman Islands court on July 11.

Deloitte and PwC were hired as the provisional liquidators of Abraaj, once one of the biggest private equity firms in the Middle East, which owes its creditors more than US$1bil.

After an audit demanded by Bill Gates’s charitable foundation and others, the buyout firm ran into trouble after being accused of mingling investors’ money with its own in a healthcare fund, setting in motion a series of events culminating in a voluntary liquidation filing in the Caymans last month.

PwC said that under Cayman rules, companies like Abraaj, which was founded by Pakistani executive Arif Naqvi in 2002, didn’t need to file standalone financials, but it’s “highly irregular” for such a firm not to do so.

A spokeswoman for Abraaj said they couldn’t comment on a report that is confidential, while a representative for PwC declined to comment.

PwC, which listed about 10 institutions among Abraaj’s creditors, also said in the filing that the buyout firm failed to maintain standalone audit reports.