Whither Abraaj?

The Abraaj Group is mak­ing head­lines in the in­ter­na­tional me­dia be­cause it is al­leged to have mis­han­dled a $1 bil­lion health care fund cre­ated by global fi­nanciers.

Southasia - - CONTENTS - By Zaigham Hameedi

The Abraaj Group seems to be break­ing the in­vis­i­ble cor­po­rate glass ceil­ing and hurt­ing many in­ter­na­tional in­ter­ests.

The Abraaj Group, hailed as the big­gest pri­vate eq­uity deal­maker in the Mid­dle East, is one of those com­pa­nies that of­ten make head­lines in the in­ter­na­tional me­dia, but mostly for the wrong rea­sons.

This time again Abraaj stole the lime­light when it was al­legedly found mis­han­dling a $1 bil­lion health-care fund, which it had re­ceived from such well-known global in­vestors as the In­ter­na­tional Fi­nance Corp (IFC) and the Bill & Melinda Gates Foun­da­tion, the largest pri­vate foun­da­tion in the US.

To know the where­abouts of the miss­ing money, Deloitte, a UK-based multi­na­tional pro­fes­sional ser­vices net­work, was of­fi­cially in­vited to in­ter­vene, re­port­edly by Abraaj it­self, to help it stem the fall­out from the dis­pute and to sort out loom­ing money mat­ters that seem to bring down the Group’s di­min­ish­ing cred­i­bil­ity.

In Fe­bru­ary, Arif Naqvi, the founder and group chief ex­ec­u­tive of The Abraaj Group, had to re­sign from the Group’s Fund Man­age­ment Busi­ness and was re­placed by Omar Lodhi, the head of Abraaj’s Asian re­gion. The move, ac­cord­ing to www.abraaj.com, the of­fi­cial web­site of The Abraaj Group, was a part of the Group’s re-or­gan­i­sa­tion ex­er­cise aimed at op­ti­mis­ing its over­all per­for­mance through en­hanc­ing gov­er­nance and pro­mot­ing ac­count­abil­ity to give more cred­i­bil­ity to sus­tain­able growth in the fu­ture.

“I am hand­ing over the reins of the fund man­age­ment busi­ness to very com­pe­tent peo­ple who will en­able the firm to grow to great heights,” said Arif Naqvi in an in­ter­view with the Fi­nan­cial Times.

“And al­low me to fo­cus on what I want to do — how to bring pri­vate cap­i­tal to meet the prob­lems of the world,” Naqvi added.

Be­hind the façade of ‘ busi­ness as usual,’ how­ever, there was some­thing else that made such a ‘rou­tine reshuf­fle in the com­pany’s top hi­er­ar­chy’ more than a des­per­ate at­tempt to save it from fur­ther ruin, which seems in­evitable at the mo­ment.

Founded in 2002 by Pak­istan-born Arif Naqvi, a re­cip­i­ent of the Pak­istan civil­ian award ‘Si­tara-I-Im­tiaz,’ the UAE-based firm is one of the largest pri­vate eq­uity groups op­er­at­ing in the emerg­ing mar­kets. Cur­rently, the Group has over $13.6 bil­lion in funds un­der man­age­ment ( FUM), in­vested in such di­ver­si­fied sec­tors as real es­tate, health care, clean en­ergy, pri­vate eq­uity and lend­ing across Asia, Africa, Turkey and Latin Amer­ica. The Group claims its $1 bil­lion health-care fund fo­cuses "on im­prov­ing care in the fields of non-com­mu­ni­ca­ble dis­ease and mother and child health in 10 ci­ties, in­clud­ing La­gos, Hy­der­abad, Karachi and Nairobi."

The fund owns 30 di­ag­nos­tic clin­ics, 17 clin­ics and 24 hos­pi­tals with over 3,200 pa­tient beds, across Pak­istan, In­dia, Kenya and Nige­ria. In 2008, Arif Naqvi, a grad­u­ate of the Lon­don School of Eco­nomics and Po­lit­i­cal Sci­ence (LSEPS), es­tab­lished the Aman Foun­da­tion, Pak­istan’s largest pri­vate so­cial sec­tor en­ter­prise that has been sup­port­ing sus­tain­able devel­op­ment in the coun­try in such key so­cial sec­tors as ed­u­ca­tion, nu­tri­tion and health care.

De­spite be­ing a nascent, pri­vately-owned so­cial sec­tor en­ter­prise, the Aman Foun­da­tion set an ex­am­ple of es­tab­lish­ing a 14-storey Aman Tower at the city cam­pus of the In­sti­tute of Busi­ness Ad­min­is­tra­tion (IBA) in Karachi in 2016.

A project worth Rs. 1100 mil­lion, the Aman Tower hosts a li­brary, 8 class­rooms, 2 lec­ture the­atres, 4 sem­i­nar halls, vis­it­ing fac­ulty res­i­dences, etc. A well-equipped mod­ern ed­u­ca­tion hub, the com­plex ac­com­mo­dates IBA's Cen­tre for Ex­cel­lence in Jour­nal­ism (CEJ), Cen­tre for Ex­ec­u­tive Ed­u­ca­tion (CEE), Cen­tre for Ex­cel­lence in Is­lamic Fi­nance (CEIF) and the Cen­tre for Busi­ness and Eco­nomics Re­search (CBER).

Cur­rently, the Abraaj Group has 66.4 per cent stake in K-Elec­tric, which is com­monly re­ferred to as the cor­po­rate ver­sion of the erst­while Mut­tahida Qaumi Move­ment (MQM), ow­ing to the group’s mafia-style of or­gan­i­sa­tion, cou­pled with fraud­u­lent busi­ness prac­tices that have turned the word ‘Abraaj’ into an abu­sive term the cit­i­zens of Karachi are quite fa­mil­iar with.

As re­ported by the Fi­nan­cial Times, the sole rea­son be­hind Naqvi’s res­ig­na­tion was not his earnest will­ing­ness to pass the ba­ton to more com­pe­tent peo­ple, but he had to quit af­ter a bar­rage of al­le­ga­tions were lev­elled against him for mis­us­ing the com­pany’s health fund ac­cu­mu­lated from the world’s lead­ing in­vestors, namely the Proparco Group, a French

devel­op­ment fi­nan­cial in­sti­tu­tion, the Bill & Melinda Gates Foun­da­tion, UK’s CDC Group and the World Bank Group’s In­ter­na­tional Fi­nance Cor­po­ra­tion (IFC).

Based on pri­vate fi­nanc­ing, the fund in­vests in hos­pi­tals and in the health care sec­tor and that too in some of the world’s more back­ward coun­tries, such as Nige­ria, Kenya and Pak­istan. All over the world, the fund is cited as an ex­em­plary model for re­plac­ing aid with af­ford­able, ac­ces­si­ble and qual­ity health care, us­ing fi­nanc­ing ac­cu­mu­lated through a va­ri­ety of pri­vate and gov­ern­ment-owned fi­nan­cial ser­vice providers.

How­ever, Naqvi dis­misses these al­le­ga­tions out­right and blames a plethora of un­fore­seen po­lit­i­cal and reg­u­la­tory is­sues that caused an un­nec­es­sary de­lay in de­ploy­ing the money.

“We are work­ing col­lab­o­ra­tively on a range of is­sues with in­vestors in our Health Care Fund while also pre­serv­ing the Fund’s vi­tal mis­sion of de­liv­er­ing af­ford­able, ac­ces­si­ble and qual­ity health care to un­der­served mar­kets,” says the Abraaj Group.

As re­vealed by the Fi­nan­cial Times, some peo­ple have al­ready raised their con­cerns about un­due de­lays in re­turn­ing funds that had been drawn down from global in­vestors in the Abraaj Growth Mar­kets Health Fund, which was not de­ployed ow­ing to re­ported reg­u­la­tory con­straints in a hand­ful of health care trans­ac­tions.

To find out how part of the $1 bil­lion fund was han­dled, the KPMG In­ter­na­tional, which is also the au­di­tor of the Abraaj Group, car­ried out a de­tailed in­ves­ti­ga­tion, which, in the end, found no ev­i­dence of any wrong­do­ing or mis­han­dling of funds, ei­ther on the part of Abraaj or its as­so­ci­ated part­ners and in­vestors.

How­ever, the in­ves­ti­ga­tion was clearly re­jected by in­vestors on the grounds that it was con­ducted in a very short time and there was also a po­ten­tial con­flict of in­ter­est as KPMG hap­pens to be Abraaj’s in­ter­nal au­di­tor. To sort out loom­ing money mat­ters, ac­cord­ing to Reuters, Deloitte has now been brought on board by Abraaj to carry out a sep­a­rate re­view of the em­bat­tled fund, while in­vestors have hired the U.S.-based Ankura Con­sult­ing Group to de­ter­mine whether Abraaj breached any agree­ments on money that was not in­vested.

Many fi­nan­cial ex­perts in­ter­pret Abraaj’s sink­ing for­tunes as an act of karma. How­ever, one must look at the other side of the coin, as this is not the first time when a multi-bil­lion fi­nan­cial con­glom­er­ate, hail­ing from a Third World Mus­lim coun­try, is be­ing spun into a grad­ual col­lapse.

De­spite its phe­nom­e­nal growth achieved within a mere 16-year pe­riod and con­sid­er­ing its role in help­ing out poor coun­tries stand on their feet in terms of so­cio-eco­nomic sta­bil­ity, the way the Abraaj Group, an ini­tia­tive taken by a Mus­lim-Pak­istani ex­pa­tri­ate, is be­ing dragged into fi­nan­cial con­tro­ver­sies and le­gal wran­gle by top in­ter­na­tional fi­nanciers, harkens back to the fate meted to the Bank of Credit and Com­merce In­ter­na­tional (BCCI), a few decades ago.

The BCCI was also the brain­child of a Pak­istani busi­ness­man. It turned out to be a huge fi­nan­cial suc­cess achieved on a global scale within a short time. Sim­i­lar to Abraaj, the BCCI also fo­cused on Third World coun­tries and soon went to the wall while no fin­gers were raised at other in­ter­na­tional fi­nan­cial or­gan­i­sa­tions with more se­vere dis­crep­an­cies up their sleeves and glar­ing ap­pro­pri­a­tion records.

This shows there is an in­vis­i­ble glass­ceil­ing that ex­ists in the in­ter­na­tional cor­po­rate world and those com­pa­nies that have a Third World back­ground and dare to break the ceil­ing or are seen com­ing closer to the mark, fall flat one way or the other. The Abraaj Group story seems to be no ex­cep­tion.

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