Defaults, liquidity squeeze, crisis of confidence hit hard
The Abraaj Group, once a rising star in the world of private equity in the Middle East and Africa region, is going for courtsupervised liquidation of two of its entities — Abraaj Holdings and Abraaj Investment Managements — to tide over a liquidity crunch, loan defaults and allegations of mismanagement.
Abraaj’s move comes after some of its investors, including the Bill & Melinda Gates Foundation, commissioned an audit a few months ago to investigate the alleged mismanagement of money in Abraaj’s health care fund. Since then, the company, which once managed almost $13.6 billion (Dh49.95 billion) in funds for regional and global institutions, has come under a cloud.
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.
The move was prompted by separate legal action by the Kuwait Public Institution for Social Security (PIFSS) and Auctus Fund in the Cayman Islands following loan defaults.
In addition to unsecured lenders and investors, who have claims to the company’s assets, there are a group of local and international banks that have made secured lending to the company, who will now have to wait for the liquidation process to be completed to recover their loans.
A group of banks — including Societe Generale, Mashreq, Noor Bank and Commercial Bank of Dubai — have reportedly provided money to Abraaj on a bilateral basis under secured loans.
Banking industry sources and lawyers said these banks have little choice but to wait until Abraaj makes an orderly exit from their portfolios under the liquidation process.
Analysts said while the liquidation could be a long-drawn process with multiple litigations and claims delaying payouts. They added that it was not in the interest of all stakeholders to push the company into a fire-sale of its portfolios.
In addition to litigation and allegations of mismanagement and governance issues, Abraaj is also facing a severe liquidity crunch resulting from its inability to complete a deal in Pakistan.
Abraaj’s liquidity position has been eroded as one of its largest-ever exits, the proposed sale of a 66.4 per cent stake in Pakistan based K-Electric, is yet to be completed. The company had agreed to sell the asset to Shanghai Electric Power Co for $1.77 billion in October 2016, but the deal has been held up due to negotiations over electricity tariffs with the government. Sources said the delay has affected cash flow.