(Bloomberg) -- Abraaj Holdings, once one of the developing world’s most influential investors, plans to file for provisional liquidation in the Cayman Islands as early as this week as it battles allegations of misused funds, according to people with knowledge of the matter.
The Dubai-based investment firm plans to file before June 29 when a court hearing of a petition to liquidate Abraaj Holdings by Kuwait’s Public Institution for Social Security is scheduled, the people said, asking not to be identified because the matter is private. No final decisions have been taken on the timing for the filing, the people said.
A court-supervised provisional liquidation would allow Abraaj to restructure debt, negotiate with creditors and sell assets, the people said. It would also allow a moratorium on the holding company’s unsecured claims, they said.
The filing would also enable Abraaj to continue talks with Cerberus Capital Management LP for a deal to acquire its fund management operations, excluding the $1 billion healthcare fund, the people said. Cerberus would prefer Abraaj to file for Chapter 11 bankruptcy in the U.S. to facilitate the deal, they said.
The interest of investors, creditors and broader stakeholders “is paramount and we keep these constituents front of mind as we responsibly explore effective options to maintain the stability and continuity of the firm,” Abraaj said in an emailed statement. The company is “continuing to work intensively and collaboratively with all of its stakeholders to resolve outstanding obligations.”
Abraaj, which once managed almost $14 billion for institutions and supranational agencies from the U.S., U.K. and other countries, faces growing concerns about its viability and impending loan repayments. The company has been under pressure since February when some of its investors commissioned an audit to investigate the alleged mismanagement of money in its healthcare fund.
Kuwait’s PIFSS said last week it filed a petition for the liquidation and winding up of Abraaj Holdings after it defaulted on a $100 million loan that was due on June 3. The fund holds a stake in Abraaj Holdings and had provided $731.8 million in loans and investments by 2013, it said. Since then, it has got back $346.2 million.
A review of Abraaj’s finances found that there was commingling of Abraaj’s own money in the health-care fund and its fourth private equity fund, according to a summary of a report by Deloitte that was presented to creditors on June 4 and seen by Bloomberg News. Abraaj still owes $94.6 million to its so-called Private Equity Fund IV, but all the money has been accounted for and there’s no evidence of embezzlement or misappropriation, according to the report.
Deloitte also said there was a lack of adequate governance at Abraaj and an overall weakness in its control framework. The firm faced a cash shortage when the sale of Pakistani utility K-Electric was delayed, the accounting company said.
The Dubai Financial Services Authority said it’s “aware of various matters” involving Abraaj Group, according to a statement earlier this week. “Relevant matters are under our attention,” the regulator said in a statement. “The DFSA will act in the interest of all investors. No further comment can be made at this time.”
Societe Generale SA and Mashreqbank PSC are also creditors to the private equity firm, according to people familiar with the matter.
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