Curiouser and curiouser as bounced cheques push Abraaj affair to scandal status

Curiouser and curiouser as bounced cheques push Abraaj affair to scandal status

When does an “affair” become a “scandal”? Usually when the forces of law and order get involved, and that is why the four-month-old Abraaj “affair” is now veering toward “scandal” status.

Until now, there has been no suggestion of criminal wrongdoing in the precipitous decline of Abraaj, once the leading lights of emerging markets investment and a flag-bearer for the UAE financial industry, but now increasingly seen as a value-destructive embarrassment for Dubai.

But writing a cheque without sufficient funds in the bank is a criminal offense in the UAE, and it appears that was what Arif Naqvi, founder and chief executive of Abraaj, did toward the end of February, to the tune of $48.2m in at least one cheque.

The full circumstances will be examined by a judge in Sharjah in the UAE toward the end of this week. It is entirely possible that by then Naqvi will have convinced the court that he can and will repay the amount, or that there were other circumstances surrounding writing the cheque that mean it should be taken off the criminal list.

Abraaj has said that the cheques were written as security against a loan in a “pure commercial transaction” and that partial repayment has already been made, talks are in progress to arrive at a satisfactory settlement, and that the matter should never have got to a criminal court in the first place.

But, until the Sharjah judge rules otherwise, there is an arrest warrant outstanding against Naqvi in the UAE. He is very unlikely to attend the court hearing in person. Naqvi, who is a UAE resident but Pakistan born, will probably want to stay in the UK, where he has been reported as being at the moment, until the immediate legal matter is resolved.

There is an increasingly “through the looking glass” feel to the Abraaj story. Naqvi, a master of the Dubai financial universe until very recently, has been caught in the bounced cheque snare that usually traps credit card delinquents and rent absconders. The blind impartiality of UAE justice is well demonstrated.

Habib Al-Mulla, Naqvi’s lawyer, told journalists that the cheques were issued to Hamad Jafar, founder of Sharjah-based Crescent Group, as partial security for a loan of $300m, which was advanced to Naqvi and Abraaj.

There is an increasingly “through the looking glass” feel to the Abraaj story.

Frank Kane


So far no explanation has been given as to why such a loan was needed, though the timing would suggest a scramble for cash after it has emerged that $200 million of investors’ money had been temporarily “co-mingled” into a fund for which it had not originally been intended.

All those transactions have been investigated now by two firms of accountants, and no evidence of fraud or embezzlement has been found.

Whether or not Abraaj assumes full-blown “scandal” status depends on what happens next. The bounced cheque revelations come at a delicate time for Abraaj. It is seeking approval from a court in the Cayman Islands for the sale of four of its funds to US investment management group Colony Capital, and while a restructuring by liquidators of the Abraaj holding company is under way in the Caribbean.

Some see sinister intent in the timing. After the bounced cheques story broke, Abraaj in Dubai issued a statement expressing surprise at the “excessive media interest” in the story. “We believe deliberate efforts are being taken to destabilize the positive developments that the group and its joint provisional liquidators have been working hard to achieve,” it said.

This has been the theme from Abraaj since the story broke in February: It is a dark conspiracy to destroy the company, and derail its efforts to get money back for creditors and investors. Each leak of information to the international media — and there have been many — is seen as another onslaught in a campaign to do Abraaj down.

Some have even suggested that an “axis of evil” extending from New York, to London, through to Sharjah, is attempting to bring about the downfall of Navi and Abraaj, though who the perpetrators might be and their possible motives is never addressed.

It is all nonsense, of course. The truth is far simpler. Abraaj was a great idea and Naqvi was an inspirational leader when it was founded in 2002. But somewhere — probably with the acquisition of Aureos Capital ten years later — it began to over-reach itself.

When the extra costs of this expansion began to be felt and some transactional hurdles were encountered, Abraaj did not have the management systems or the internal governance culture to deal with it. The result: Co-mingling, cash scrambles and bounced cheques.

Those who admire what Naqvi did at Abraaj are hoping that the Sharjah judges’ verdict this week will signal the end of the affair. But nobody would really be surprised if the scandal intensified.

  • Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai
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