Abu Dhabi fund moves on Abraaj asset management business

Abraaj founder and chief executive Arif Naqvi stepped aside from day-to-day running of its private equity fund unit after the dispute went public early this year. (Courtesy World Economic Forum)
Updated 19 June 2018
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Abu Dhabi fund moves on Abraaj asset management business

LONDON: Abu Dhabi Financial Group has emerged as a bidder for the asset management business of Abraaj, the Dubai-based private equity firm that has filed for provisional voluntary liquidation.

Reports of the bid emerged as the fallout from the firm’s collapse spreads across the region’s financial sector with airline Air Arabia revealing it is an investor in the buyout firm.

ADFG, the alternative asset management firm that specializes in distressed assets, made a conditional offer for $50 million, via its subsidiary Abu Dhabi Capital Management, according to a document reviewed by Reuters.

The offer comes in below an offer of $125 million made by New York-based private equity firm Cerberus Capital Management, made ahead of Abraaj’s decision to file for provisional liquidation in the Cayman Islands last week, and indicates the extent of the firm’s spectacular fall from grace.

The terms of the offer were unclear, and it is not known to what extent they differ from those in Cerebrus’ offer.

ADFG declined to comment on the report when contacted by Arab News. The UAE-based firm’s other investments include shareholdings in Dubai’s Shuaa Capital, Sharjah’s Dana Gas, and embattled Singapore trading firm Noble.

The offer for Abraaj comes as the impact of the firm’s collapse continues to create waves across the region’s financial sector.

The region’s banking system is unlikely to be severely impacted by Abraaj’s woes, with banking creditors all secured lenders, said Jaap Meijer, managing director of equity research at Arqaam Capital in Dubai.

“Some other companies have invested in Abraaj funds, but it is yet uncertain if those end up with losses,” he told Arab News.

Air Arabia shares hit an 11-year low on Monday, after it emerged its investment portfolio was exposed to Abraaj funds.

“Air Arabia has appointed a team of experts who are actively engaged with all stakeholders and creditors involved with the matter to ensure Air Arabia’s investment and business interest is protected,” the airline said in a statement of the Dubai Financial Market on Tuesday.

The carrier’s shares, the most traded stock on the Dubai bourse, ended the day unchanged on Tuesday.

The court-driven restructuring process, initiated by Abraaj may be a boon for capital markets in the region, if the firm is forced to sell assets as part of the process, said Meijer.

But alternative investment firms in the region are likely to be negatively impacted by the firm’s woes, he said.

“(The fallout from Abraaj) will reduce the appetite for new VC or PE funds though and could hurt new start ups and pre-IPO financing,” he predicted.

Abu Dhabi-based investment firm Waha Capital has abandoned plans to raise a $300 million private equity fund, with investor demand falling in the wake of the Abraaj saga, Reuters reported.

The company’s shares fell to their lowest level in nearly six weeks on Monday, before recovering strongly on Tuesday.

Earlier this month, Gateway Partners CEO V. Shankar told Arab News that while his Dubai-based firm had not been affected, international investors previously interested in the region’s PE sector had taken fright, describing the EM space as “like the aftermath of a terrorist attack.”

Abraaj — which at one point handled assets worth nearly $14 billion — filed for provisional voluntary liquidation of its holding company in the Cayman Islands last week, amid reports of unpaid debts and allegations of financial mismanagement.

The application by Abraaj — which was formally approved by a Cayman court on Tuesday — was designed to head off a petition to wind up the holding company, brought by Kuwait’s Public Institution for Social Security, following missed payments on a $100 million loan.

Abraaj founder Arif Naqvi said last week that he expected the court-supervised restructuring process to take “a few months.”

Reports of mismanagement have dogged the company since February, when it was reported 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 committed.

Last week an investigation conducted by Deloitte found that Abraaj had commingled about $95 million worth of funds due to a cash shortage, but found no evidence of embezzlement.


Apple Watch, FitBit could feel cost of US tariffs

Updated 20 July 2018
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Apple Watch, FitBit could feel cost of US tariffs

SAN FRANCISCO: The latest round of US tariffs on $200 billion of Chinese goods could hit the Apple Watch, health trackers, streaming music speakers and other accessories assembled in China, government rulings on tariffs show.
The rulings name Apple Inc’s watch, several Fitbit Inc. activity trackers and connected speakers from Sonos Inc. While consumer technology’s biggest sellers such as mobile phones and laptops so far have faced little danger of import duties, the rulings show that gadget makers are unlikely to be spared altogether and may have to consider price hikes on products that millions of consumers use every day.
The devices have all been determined by US Customs and Border Patrol officials to fall under an obscure subheading of data transmission machines in the sprawling list of US tariff codes. And that particular subheading is included in the more than 6,000 such codes in President Donald Trump’s most recent round of proposed tariffs released earlier this month.
That $200 billion list of tariffs is in a public comment period. But if the list goes into effect this fall, the products from Apple, Fitbit and Sonos could face a 10 percent tariff.
The specific products listed in customs rulings are the original Apple Watch; Fitbit’s Charge, Charge HR and Surge models; and Sonos’s Play:3, Play:5 and SUB speakers.
All three companies declined to comment on the proposed tariff list. But in its filing earlier this month to become a publicly traded company, Sonos said that “the imposition of tariffs and other trade barriers, as well as retaliatory trade measures, could require us to raise the prices of our products and harm our sales.”
The New York Times has reported that Trump told Apple CEO Tim Cook during a meeting in May that the US government would not levy tariffs on iPhones assembled in China, citing a person familiar with the meeting.
“The way the president has been using his trade authority, you have direct examples of him using his authority to target specific products and companies,” said Sage Chandler, vice president for international trade policy at the Consumer Technology Association.
The toll from tariffs on the gadget world’s smaller product lines could be significant. Sonos and Fitbit do not break out individual product sales, but collectively they had $2.6 billion in revenue last year. Bernstein analyst Toni Sacconaghi estimates that the Apple Watch alone will bring in $9.9 billion in sales this year, though that estimate includes sales outside the United States that the tariff would not touch.
It is possible that the products from Apple, Fitbit and Sonos no longer fall under tariff codes in the $200 billion list, trade experts said. The codes applied to specific products are only public knowledge because their makers asked regulators to rule on their proper classification. And some of the products have been replaced by newer models that could be classified differently.
But if companies have products whose tariff codes are on the list, they have three options, experts said: Advocate to get the code dropped from the list during the public comment period, apply for an exclusion once tariffs go into effect, or try to have their products classified under a different code not on the list.
The last option could prove difficult due to the thousands of codes covered, said one former US trade official.