Abraaj Group, founded by Arif Naqvi, expects to reach a deal with its secured creditors. Jakob Polacsek / World Economic Forum
Abraaj Group, founded by Arif Naqvi, expects to reach a deal with its secured creditors. Jakob Polacsek / World Economic Forum

Abraaj expects to reach debt standstill deal with secured creditors 'imminently'



Abraaj Group, the private equity company in Dubai facing allegations of misusing investors’ funds, expects to reach a deal with its secured creditors to freeze the troubled company’s debt.

“The secured creditors are expected to imminently conclude a standstill which will provide Abraaj the ability to meet its obligations in an orderly fashion,” the company said in a statement late Monday. A secured creditor is a lender or creditor that extends capital or is associated with an investment that is backed by collateral.

Abraaj met key stakeholders and creditors on Monday to discuss the potential sale of its investment management business, its debt restructuring and the ongoing reorganisation of the buyout firm. The company said it was “pleased with the outcome of the meeting and the constructive support we have received from our secured creditors in enabling us to move forward and resolve outstanding issues”.

Abraaj did not specify how much it owes to the banks and for how long it expects its debt to be frozen by the creditors. However, Reuters, said most of the creditors agreed to the standstill, which would see Abraaj's estimated $1bn debt frozen for around 90 to 120 days. However, Kuwait's Public Institution for Social Security (PIFSS), an unsecured creditor, refused to agree to the standstill, which could potentially stall the sale of the company’s investment management business as it needs support of both secured and unsecured creditors for the deal to go ahead, according to the report.

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"Ultimately each class of creditors [secured and unsecured] would need to vote in favour of any restructuring plan for it to work," Khalid Howladar, managing director of credit and sukuk advisory Acreditus said. "For the unsecured creditors its best to be part of a consensual restructuring as they would be at the very bottom of the creditor food-chain."

Its remains to be seen at this point how much residual asset value would be left after Abraaj pays out the secured investors in a liquidation scenario, Mr Howladar pointed out.

Abraaj also discussed the proposed sale of Abraaj Investment Management and company founder and group chief executives Arif Naqvi, along with co-CEOs of funds business Omar Lodhi and Selcuk Yorgancioglu updated the participants on all aspects of the group.

“A number of specialist advisers also participated, to provide the attendees with the fullest possible understanding of progress made in recent weeks and the current status of the group,” according to the statement.

Abraaj is trying to push through a sale of the funds management business along with the company’s stakes in various companies in a bid to resolve liquidity problems. New York-based Cerberus Capital Management is among the potential buyers of the investment management business, according to reports.

Houlihan Lokey is advising Abraaj on its debt and the sale of its investment management business.

The Middle East’s biggest buyout company, which at its peak had more than $13.6 billion (Dh49.96bn) of assets under management, is reeling from allegations of misusing funds in a healthcare investment vehicle that deployed capital from investors including the Bill & Melinda Gates Foundation, the World Bank’s International Finance Corporation, Britain’s CDC Group and Proparco Group of France.

The Wall Street Journal and The New York Times in February claimed some of the 24 investors in the $1bn Abraaj Growth Markets Health Fund (AGHF) had hired forensic accountants to investigate what had happened to some of the money invested in the fund. Abraaj denies any wrongdoing.

The allegations of misuse have snowballed and the company founded by Mr Naqvi in 2002 is now reorganising its structure. It has subsequently returned capital in a new global fund, and has delayed an initial public offering or sale of its North African hospitals business, and pared about 15 per cent of its total workforce.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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