The fall of Abraaj

I should not gloat over the demise of Abraaj Capital but karma is a wonderful thing!

The Dubai-based private equity group has filed for provisional liquidation — a Cayman Islands court-driven restructuring process — to protect itself against a winding up order brought by two creditors.

Abraaj reported debts of over $1.1bn, and faces allegations of misusing investor money held in Abraaj’s $1bn healthcare fund to support the business of founder Arif Naqvi.

Abraaj claims that it had followed procedures, but the loss of confidence sent the firm into a death spiral. The knock on damage to the UAE’s nascent private equity sector should not be under-estimated.

The trouble with Abraaj is that their business and leadership were based upon a combination of arrogance and greed – with neither soul or humanity.

Abraaj had grown from being a Middle Eastern company to a global emerging markets specialist operating across Africa, Asia, Latin America, Turkey and Central Asia as well as its home market, with $14bn under management. Its investor list included the Bill & Melinda Gates Foundation and the International Finance Corporation, an arm of the World Bank.

Both Abraaj spokespeople and Mr Naqvi, the company’s largest shareholder, deny any wrongdoing. Liquidators are now in the process of assessing bids for Abraaj’s business as it seeks to raise funds to repay creditors and staff.

Firms such as Brookfield Asset Management and Actis have tendered offers for parts of the Abraaj empire, reports the Financial Times.

Abraaj was founded by Karachi born Arif Naqvi. who became something of a celebrity in investment circles.

Yet Abraaj executives now blame the company’s founder and fellow board members for what PwC, the liquidator of the holding company, refers to as “the long running liquidity shortfall between the investment management fees and operating expenses”. Insiders estimate this gap to have run to between $30m and $60m a year — the company was, in short, spending beyond its means and towards the end using other people’s money to do it, say executives and investors.

In March last year, Abraaj hosted 500 guests for a week of discussion, including a dinner at Dubai’s Burj Khalifa, the world’s tallest building. Among those who addressed investors and portfolio managers was John Kerry, the former US secretary of state.

You cannot do that if you cannot afford it. But the lifestyle became an addiction. That can happen in the Gulf. That desire to emulate the lifestyles of local the ruling families.

As cash flow issues worsened last autumn, Abraaj dipped into funds held by global investors in the $1bn healthcare fund, including the Gates Foundation and the IFC, both of whom asked for their money back.

The subsequent realisation that the cash had been lent to another fund triggered a loss of confidence that eventually brought Abraaj down.

Mr Naqvi has argued this unusual practice was permitted under their agreements. While Abraaj repaid the money with interest, the investors appointed the consultancy Ankura to carry out an independent audit to trace the money.

But investor concerns made that all but impossible and opened the floodgates on Abraaj, which had for years marketed itself as a safe gateway into emerging markets.

Dozens of staff have been made redundant and others resigned. Quite honestly given how they treated people at the companies they invested in I have zero sympathy.

The story or Abraaj mirrored the rise of Dubai as a city state making a serious global statement. Abraaj flourished in an environment that without adequate oversight and with poor standards of audit and compliance. The clouds over the city could be there for some time.

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