What's Left of Abraaj and How It Collapsed So Quickly

(Bloomberg) -- It took almost 16 years to build Abraaj Group into one of the most influential emerging-market investors and the Middle East’s biggest private equity dealmaker. The Dubai-based firm’s dramatic collapse took just four months. Suitors are now circling the company’s funds as liquidators seek to settle about $1 billion in debt.

1. What went wrong?

The problems for the buyout firm and its founder, Arif Naqvi, began in February with allegations that money in the company’s health fund had been misused. Naqvi and the company have denied wrongdoing and blamed unforeseen political and regulatory hurdles for a delay in deploying the money. Kuwait’s Public Institution for Social Security and a fund linked to Sharjah-based Crescent Group’s Hamid Jafar filed a petition in the Cayman Islands to liquidate the company after Abraaj defaulted on loans.

2. Where do things stand?

Abraaj Investment Management Ltd., which manages the private equity funds, and its parent, Abraaj Holdings Ltd., filed for provisional liquidation in the Cayman Islands, where they are registered, in June after lenders turned off the taps. Deloitte LLP and PricewaterhouseCoopers LLP were appointed by the court to oversee Abraaj’s restructuring and are evaluating bids from companies to operate the funds. A report by PwC found that the company’s main revenues hadn’t covered its operating costs for years. Abraaj had borrowed to fill the gaps and fund asset purchases and now owes creditors over $1 billion.

3. What was so special about Abraaj?

From its roots in the Middle East, Abraaj expanded to invest in private equity, health care, clean energy, lending and real estate across Africa, Asia, Latin America and Turkey. It had grown to become one of the largest private equity groups in emerging markets -- "growth markets," as Naqvi preferred to call them -- with $13.6 billion in assets under management.

4. Who invested in its funds?

Abraaj attracted investors, including family offices, foundations, sovereign wealth funds and pension funds, pursuing higher returns alongside social goals. The Bill & Melinda Gates Foundation, the World Bank’s International Finance Corp. unit and two government-backed development finance organizations, CDC Group Plc and Proparco Group, are among some two dozen investors in Abraaj’s $1 billion health-care fund, and they hired a forensic accountant to examine what happened to some of their money. (The Gates foundation, based in Seattle, Washington, is the world’s largest private philanthropic organization.) Dutch health-equipment company Royal Philips NV, is another investor in the health fund. Private-equity investors usually commit capital for five to seven years, making it a highly-illiquid investment.

5. What’s happened to the Abraaj funds?

Investors said in August that they had appointed consulting firm AlixPartners LLP to oversee the health-care fund’s separation from Abraaj. Private equity firm TPG is in exclusive talks to take it over and combine it with its Rise Fund, which aims to achieve market returns while also making a positive social and environmental impact. Investors in a separate $1.6 billion Abraaj private equity fund have hired advisory firm Alvarez & Marsal Holdings LLC to help them recover what they say is at least $300 million owed to them, Bloomberg has reported.

6. Who else is interested?

Actis’s $1 bid for Abraaj’s African private equity operations is favored by investors in the funds, despite higher offers linked to Persian Gulf-based firms, according to people familiar with the matter. Brookfield Asset Management Inc. is expected to acquire its Turkey private equity funds, and Colony Capital Inc. is the favorite to buy the company’s Latin America funds. Abu Dhabi Financial Group, Kuwaiti logistics firm Agility and Centerbridge Partners are also interested in some of its funds.

7. What’s happened to Naqvi?

A pioneer in the Mideast buyout market, Naqvi, 58, has largely kept a low profile throughout the company’s collapse and hasn’t been seen in Dubai since the problems began. Naqvi faced a criminal case in the U.A.E. over bounced checks, but his sentencing was annulled after Naqvi reached a settlement with the Crescent Group’s Jafar. Born in Karachi, Pakistan, Naqvi graduated from the London School of Economics and began his career in accounting at Arthur Andersen LLP and worked in Saudi Arabia for billionaire Suliman Olayan. He founded Abraaj in 2002.

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