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.


Egypt sees surge in share offerings, testing market

Updated 23 min 29 sec ago
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Egypt sees surge in share offerings, testing market

  • Public share sales first in more than a decade
  • International volatility could deter investors

CAIRO: A surge of new shares offerings over the next few months will test whether Egypt can withstand emerging market contagion after currency crises that rattled Turkey and Argentina last month.
The government hopes offerings in five state-controlled firms already trading on the stock exchange will help trim its budget deficit.
Five private companies planning initial public offerings (IPOs) by the end of the year which could spur investment and private-sector growth, which has been moribund since Egypt’s 2011 uprising. A sixth private company plans a rights issue.
Economists say international participation would help appetite among local investors but international market volatility may be chasing them away.
“A realistic good scenario is that you stick to your timeline and you’re able to sell your entire pipeline of offerings at very compelling valuations,” said Wael Ziada, head of investment company Zilla Capital.
“A bad scenario is that if there is a deep, deep crisis in emerging markets, you may have to pull some of these offerings,” said Ziada, former head of research at EFG Hermes, Egypt’s biggest investment bank.
The Japanese brokerage Nomura this month listed Egypt as one of seven emerging market countries, including Turkey and Argentina, at risk of foreign exchange rate crises.
An economist at an Egyptian investment company said the government’s sudden push to sell shares after a hiatus of more than a decade was stretching the ability of banks managing the offerings and the appetites of investors.
“You have to do the research, test the market, do the marketing and do a road show,” said the economist, who declined to named. “The government should be staggering the offerings.”
Egypt is working on selling shares in at least 23 state-owned companies over the next few years. Analysts say much of the state sector has been suffering heavy losses and companies need major management overhauls and modernization.
The government on Monday it said it would offer five of these in the coming three months. It will start in October with a 4.5 percent stake in cigarette maker Eastern Company and a 20 percent stake in Alexandria Mineral Oils Company (AMOC).

TEN BILLION TARGET
The government is hoping the sales will help it reduce its budget deficit to 8.4 percent of GDP in the year to June 2019 from 9.8 percent last year.
Finance Minister Mohamed Maait said last week the government had budgeted 10 billion Egyptian pounds ($560 million) in revenue from share sales between now and June 30, when the current fiscal year ends.
“However, if we can get more we will be happy,” he said.
At the same time, private companies are hoping to benefit from an improved macroeconomic climate after IMF-backed reforms and an increase in tourism revenues and natural gas production.
Mohamed Elakhdar, Beltone Investment Banking’s managing director, estimated that the private offerings would reap more than 10 billion Egyptian pounds — a similar figure to expected revenue from state company sales, but over just three months.
Beltone is managing the IPOs of leasing company Sarwa Capital and textiles company Giza Spinning and Weaving and a rights issue for a third company
“Appetite, yes. There is, I believe,” said Hany Farahat, senior economist at Egyptian investment bank CI Capital.
“The key challenge is related to the process, how these transactions have to be structured and marketed to investors. This is what could make them a big success or failure.”
Another round of IPOs — both private and government — is expected in the first six months of 2019.
“We’re on a road show right now. The demand we’re seeing has been fairly healthy,” said Beltone’s Elakhdar told Reuters. “People are viewing Egypt differently than the rest of emerging markets.” ($1 = 17.8600 Egyptian pounds)