What's Been Learned and Who's Charged in Abraaj Collapse

(Bloomberg) -- The startling collapse of Abraaj Group, the once-mighty Middle Eastern private equity firm, continues to reverberate. Regulators in Dubai, where the dealmaker is based, have imposed a record fine, and Abraaj founder Arif Naqvi and a clutch of senior executives face legal charges in the U.S. The scandal, meanwhile, has all but frozen fundraising by other Dubai-based buyout companies.

1. What is Abraaj accused of doing wrong?

The Dubai Financial Services Authority fined two Abraaj Group companies a combined $315 million for deceiving investors and misappropriating funds. “Misconduct and deceit were pervasive and persistent,” and management "rode roughshod” over its compliance function, the authority said. Mustafa Abdel-Wadood, a former Abraaj managing partner, admitted in a court in June that he lied to investors in an attempt to hide losses and raise more money. He’s one of six former Abraaj executives facing racketeering and securities-fraud charges after an investigation by New York prosecutors. The others are Chief Financial Officer Ashish Dave and managing directors Sivendran Vettivetpillai, Rafique Lakhani and Waqar Siddique.

2. What happened to Naqvi?

He’s effectively under house arrest, fighting extradition to the U.S. in the same New York case that has ensnared his former colleagues. He was granted conditional bail in the U.K. on May 3 but had to surrender his travel documents, wear an electronic tag and remain in his London home. He’s charged with inflating the value of Abraaj’s holdings and stealing hundreds of millions of dollars. Naqvi maintains his innocence and expects to be cleared of any charges, his spokesman has said. Naqvi was this week sentenced in absentia to three years in prison by a court in the United Arab Emirates for a case involving low-cost carrier Air Arabia PJSC.

3. How did we get here?

Problems began in February 2018 with allegations that money in Abraaj’s health fund had been misused. Naqvi and Abraaj denied wrongdoing and blamed unforeseen political and regulatory hurdles for a delay in deploying the money. After Abraaj defaulted on loans, Kuwait’s Public Institution for Social Security and a fund linked to Sharjah-based Crescent Group’s Hamid Jafar moved to force the company into a court-supervised restructuring. Abraaj Investment Management Ltd., which managed the private equity funds, and its parent, Abraaj Holdings Ltd., filed for provisional liquidation in the Cayman Islands, where they’re registered. PricewaterhouseCoopers LLP, helping to oversee Abraaj’s restructuring, said the group’s main revenues hadn’t covered its operating costs for years. Abraaj had borrowed to fill the gaps and fund asset purchases and wound up owing creditors more than $1 billion.

4. Where does the liquidation stand?

While liquidators seek to settle the company’s debt, some investors are finding comfort as new managers take control of a few Abraaj funds. In July, London-based Actis LLP took over management of the $1.6 billion Abraaj Private Equity Fund IV and a $990 million fund that invests in Africa. Colony Capital Inc. acquired Abraaj’s Latin American operations in April, and U.S.-based TPG took over its $1 billion health fund in June. PwC and Deloitte LLP, appointed by a Cayman court to oversee the restructuring, are evaluating bids from companies to operate other funds.

5. Who’s interested in Abraaj’s remaining funds?

Franklin Templeton Investments and Turkey’s Actera Group were in talks earlier this year to buy funds managed by Abraaj’s Turkish unit. Brookfield Asset Management Inc. was also keen to acquire the Turkey funds. An investment firm founded by former UBS Group AG banker Yassine Bouhara bid to buy some of Abraaj’s other funds, while Abu Dhabi Financial Group, Kuwaiti logistics firm Agility and Centerbridge Partners have also expressed interest.

6. What explains the broader fallout?

Abraaj’s downfall eroded investor confidence in private equity companies in emerging markets. Abraaj was one of the largest such investors, with $13.6 billion in assets under management. Since it began unraveling, private equity firms based in the six Arab nations of the Gulf Cooperation Council have raised almost no money. That’s in spite of strong performances almost everywhere else, according to Seattle-based data provider PitchBook and London-based Preqin.

The Reference Shelf

• Abraaj used colors and noise to prioritize payments to investors.
• Behind the spectacular collapse of the private equity titan.
• A 2015 Forbes magazine story on Abraaj’s "stunning rise in global private equity."
• Gates and Naqvi spoke together at the World Economic Forum in Davos.

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Bruce Stanley

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