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

Company says it received "constructive support" from secured creditors to resolve outstanding issues

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

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.