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.