Abraaj files for provisional liquidation in the Cayman Islands

Arif Naqvi, chief executive officer of the Abraaj Group. (Getty Images)
Updated 14 June 2018
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Abraaj files for provisional liquidation in the Cayman Islands

  • Follows on weeks of speculation over company’s future.
  • Abraaj: “The company has made this application so that the rights of all stakeholders can be protected.”

LONDON:

Abraaj has filed for a court-supervised provisional liquidation in the Cayman Islands, marking a spectacular fall from grace for the Middle East’s largest private equity group.

The action — which will put the company’s future under the control of court-appointed liquidators — comes as a bid to head off petitions by creditors to wind up the firm, following months’ worth of allegations of financial mismanagement.
Abraaj plans to appoint Simon Conway of PwC Corporate Finance and Recovery, and Michael Jervis and Mo Farzadi of PricewaterhouseCoopers as the joint provisional liquidators (JPLs) of its holding company Abraaj Holding, according to a statement put out on Thursday.
The application was made ahead of a hearing later this month in a Cayman Islands court of a petition by Kuwait’s Public Institution for Social Security (PfISS), one of Abraaj’s unsecured creditors, to have the company wound up over missed payments on a $100 million loan.
“The company has made this application so that the rights of all stakeholders can be protected while the company and the JPLs promote a consensual restructuring of the company’s obligations,” the company said.
The appointment of provisional liquidators imposes a moratorium on the enforcement of all unsecured claims against Abraaj.
“Under the auspices of the court, the situation has now been stabilized, and we can move forward to meet the firm’s commitments and restore confidence in the platform,” said Sean Cleary, chairman of Abraaj Holdings, yesterday.
Founded in 2002 by Arif Naqvi, the Abraaj Group grew to become the largest buyout firm in the Middle East, at one point managing $14 billion worth of assets. Its funds, many of which are geared toward projects in emerging markets including Pakistan, attracted high-profile investments from the development community.
But it emerged in February that investors in an Abraaj health care fund — including the Bill & Melinda Gates Foundation and the World Bank’s International Finance Corporation — had hired forensic accountants over concerns about the whereabouts of money they had invested.
Abraaj initially dismissed the allegations, commissioning an investigation by KPMG that exonerated it of any wrongdoing.
But rumors of mismanagement persisted, leading to Naqvi stepping back from investment decisions and the departure of senior executives.
Earlier this week, Deloitte — commissioned at the behest of investors unsatisfied with KPMG’s original investigation — found that Abraaj had commingled about $95 million worth of funds due to a cash shortage, but found no evidence of embezzlement.
By that time, however, Abraaj’s future existence had come into question, with PfISS and another unsecured creditor — reported by Reuters to be Auctus Fund Ltd. — filing petitions in a Cayman Islands court seeking the liquidation of the firm over unpaid debts.
Abraaj last week requested a standstill agreement from its creditors, amid reports it was seeking to sell its investment management business to US-based private equity firm Cerebrus Capital, which was reported to have offered just $125 million for the business.
“This (liquidation) process marks the culmination of an extremely complex and challenging phase of negotiations and detailed planning,” said Naqvi in a statement yesterday.
“Since our differences with certain investors came to light, we have worked exhaustively and transparently to investigate the matter and address their concerns … The intense public scrutiny and highly speculative rumors on these matters have put enormous stress on the Abraaj family of employees and partners, together with our investors and other stakeholders.
Naqvi said he expected the court-supervised restructuring process to take “a few months.”
Allen & Overy LLP, Carey Olsen and Milbank, Tweed, Hadley & McCloy LLP are serving as legal advisers and Houlihan Lokey are serving as financial advisers to Abraaj Holdings.


Malaysia reviews China infrastructure plans

Malaysia’s former PM Najib Razak (AFP)
Updated 18 June 2018
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Malaysia reviews China infrastructure plans

  • Malaysia's scandal-mired former PM Najib Razak signed a string of deals for Beijing-funded projects, including a major rail link and a deep-sea port.
  • New Prime Minister Mahathir Mohamad has announced a planned high-speed rail link between Kuala Lumpur and neighboring Singapore will not go ahead as he seeks to reduce the country’s huge national debt.

KUALA LUMPUR: Malaysia has been a loyal partner in China’s globe-spanning infrastructure drive, but its new government is to review Beijing-backed projects, threatening key links in the much-vaunted initiative.

Kuala Lumpur’s previous regime, led by scandal-mired Najib Razak, had warm ties with China, and signed a string of deals for Beijing-funded projects, including a major rail link and a deep-sea port.

But the long-ruling coalition was unexpectedly voted out last month by an electorate alienated by allegations of corruption and rising living costs.

Critics have said that many agreements lacked transparency, fueling suspicions they were struck in exchange for help to pay off debts from the financial scandal which ultimately helped bring down Najib’s regime.

The new government, led by political heavyweight Mahathir Mohammed, has pledged to review Chinese deals seen as dubious, calling into question Malaysia’s status as one of Beijing’s most cooperative partners in its infrastructure push.

China launched its initiative to revive ancient Silk Road trading routes with a global network of ports, roads and railways — dubbed “One Belt, One Road” —  in 2013.

Malaysia and Beijing ally Cambodia were seen as bright spots in Southeast Asia, with projects in other countries often facing problems, from land acquisition to drawn-out negotiations with governments.

“Malaysia under Najib moved quickly to approve and implement projects,” Murray Hiebert, a senior associate from think-tank the Center for Strategic and International Studies, told AFP.

Chinese foreign direct investment into Malaysia stood at just 0.8 percent of total net FDI inflows in 2008, but that figure had risen to 14.4 percent by 2016, according to a study from Singapore’s ISEAS-Yusof Ishak Institute.

However, Hiebert said it was “widely assumed” that Malaysia was striking quick deals with China in the hope of getting help to cover debts from sovereign wealth fund 1MDB.

Najib and his associates were accused of stealing huge sums of public money from the investment vehicle in a massive fraud. Public disgust at the allegations — denied by Najib and 1MDB — helped topple his government.

Malaysia’s first change of government in six decades has left Najib facing a potential jail term.

New Prime Minister Mahathir Mohamad has announced a planned high-speed rail link between Kuala Lumpur and neighboring Singapore will not go ahead as he seeks to reduce the country’s huge national debt.

The project was in its early stages and had not yet received any Chinese funding as part of “One Belt, One Road.” But Chinese companies were favorites to build part of the line, which would have constituted a link in a high-speed route from China’s Yunnan province to trading hub Singapore, along which Chinese goods could have been transported for export.

Work has already started in Malaysia on another line seen as part of that route, with Chinese funding — the $14-billion East Coast Rail Link, running from close to the Thai border to a port near Kuala Lumpur.

Mahathir has said that agreement is now being renegotiated.

Other Chinese-funded initiatives include a deep-sea port in Malacca, near important shipping routes, and an enormous industrial park.

It is not clear yet which projects will be amended but experts believe axing some will be positive.

Alex Holmes, Asia economist for Capital Economics, backed canceling some initiatives, citing “Malaysia’s weak fiscal position and that some of the projects are of dubious economic value.”

The Chinese foreign ministry did not respond to request for comment.

Decoder

What is the "One Belt, One Road" initiative?

The “One Belt, One Road” initiative, started in 2013, has come to define the economic agenda of President Xi Jinping. It aims to revive ancient Silk Road trading routes with a network of ports, roads and railways.