Hedge Fund York Capital Joins Race for Abraaj Assets

(Bloomberg) -- Another American bidder is joining the race for the rights to manage a network of emerging-market funds up for grabs in the liquidation of Dubai-based private equity firm Abraaj Group.

New York-based hedge fund York Capital Management, run by Jamie Dinan, is said to have placed a $45 million offer for Abraaj’s asset-management platform, which will give the winner easy access to more than a dozen developing countries across the world where the collapsing company has offices.

The network offers "a relatively cheap entry for a U.S. or European firm to gain quick access to a large number of emerging markets, and will also pay for some of the costs borne by the near collapse of Abraaj," said Richard Segal, a senior analyst at Manulife Asset Management Ltd. in London.

Abraaj was the Middle East’s biggest private equity firm until accusations that it mismanaged hundreds of millions of dollars of clients’ money sent it spiraling into collapse in a matter of months. Now its court-appointed liquidators, PricewaterhouseCoopers and Deloitte, are trying to sell the company’s assets, in part to pay back creditors who are owed more than $1 billion.

York Capital -- which has run a multi-strategy fund since 1991 -- joins a growing list of contenders for the fund management platform, among them New York-based private equity firm Cerberus Capital Management, said to have placed a lower bid of $25 million. So far, the highest bidder is Abu Dhabi Financial Group’s capital management unit at $55 million.

Selling Stakes

York Capital’s proposal includes about $20 million that would go toward severance payments for staff who are losing their jobs in Dubai as Abraaj winds down operations, according to people familiar with the bid, who asked not to be identified as the information is private. York Capital declined to comment, as did a representative for Abraaj.

Selling rights to manage the funds is the easy part for the liquidators. What will be harder is offloading Abraaj’s stakes in 12 funds that, according to a PwC and Deloitte report seen by Bloomberg, were valued at $645.8 million as of the end of March. Its lenders -- mostly Middle Eastern banks like Commercial Bank of Dubai but also including Societe Generale SA -- have an interest in reclaiming as much of that amount as possible.

The liquidators had earlier rejected a proposal from Los Angeles-based Colony Capital which included an offer of about $300 million for those stakes.

Abraaj’s downfall happened quickly because, unlike the norm in the private equity industry, it had been relying for years on short-term borrowing to pay for its general operating expenses, according to the PwC and Deloitte report.

Creditors quickly shut off the taps after it was revealed late last year that some investors in a $1 billion health-care fund, including the Bill & Melinda Gates Foundation and the World Bank’s International Finance Corp. unit, had hired a forensic accountant to examine what happened to some of their money.

It turned out Abraaj had borrowed cash from the fund without giving notice to investors, which has since sparked a crisis of confidence and debt defaults that culminated in the 16-year-old buyout firm filing for a court-supervised restructuring last month.

Its founder, Arif Naqvi, has already faced one criminal case in the U.A.E. related to a bounced cheque, but he’s since reached an initial settlement on it.

©2018 Bloomberg L.P.

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