Air Arabia appoints advisors to evaluate future of Abraaj investment

Carrier’s stock tumbled on connection with stricken private equity firm

Abraaj’s founder and chief executive Arif Naqvi is one of the airline’s board directors, according to Air Arabia’s website. Ruben Sprich/Reuters

Air Arabia, the Sharjah-based low-cost carrier, said it appointed advisors to protect its investment in ailing private equity firm Abraaj Group, which last week filed for provisional liquidation.

Dubai-listed Air Arabia, which holds an undisclosed investment in an Abraaj fund, saw its stock plummet by as much as 7.08 per cent by close of trade on Monday, amid news of its investment in Abraaj.

"As part of the Air Arabia Group investment portfolio, the carrier has an investment in Abraaj funds," a spokeswoman for Air Arabia told The National.

“Air Arabia has appointed a team of experts who are actively engaged with all stakeholders and creditors involved with the matter to ensure Air Arabia’s investment and business interest is protected.”

The spokeswoman declined to say whether a stake sale is one option that is being explored.

The carrier was the worst performer on the Dubai Financial Market on Monday, with its share price falling to a low of Dh1.05.

Abraaj's founder and chief executive Arif Naqvi is one of the airline's board directors, according to Air Arabia's website. Abraaj declined to comment on the connection between it and Air Arabia when contacted by The National. According to Abraaj's website, it invested in Air Arabia in 2007, but there are no further details on the size of the investment.

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“Due to the fact that Abraaj owns shares in Air Arabia (undisclosed percentage), investors are concerned of a possible sell off due to the provisional liquidation and debt restructuring with lenders,” said Tariq Qaqish, managing director of asset management at Dubai-based financial services firm Menacorp.

Abraaj last week filed for provisional liquidation in the Cayman Islands, where it is registered, as it seeks to limit the fallout from allegations of misuse of investors’ funds, which have sparked legal battles with some of its creditors. The move comes as one of its unsecured creditors, the Kuwait Public Institution for Social Security (PIFSS), filed earlier this month a petition in the Cayman Islands Grand Court seeking liquidation of Abraaj after it defaulted on a $100 million loan due on June 3.

A secured creditor is a lender or creditor that extends capital or is associated with an investment that is backed by collateral.

Auctus Fund is the second creditor this month to file a lawsuit against Abraaj, according to a Reuters report.

The Middle East’s biggest buyout company had more than $13.6bn (Dh49.96bn) of assets under management at its peak. It came under fire this year with 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, the UK’s CDC Group and France’s Proparco Group.

The Wall Street Journal and The New York Times claimed in February that around 24 investors in the $1bn Abraaj Growth Markets Health Fund had hired investigators to find out what had happened to some of the money invested in the fund. Abraaj denies any wrongdoing.

The group is now trying to reorganise its business and sell its funds management unit, and some of its stakes in other companies, to resolve liquidity issues.

Summary findings of a review by Deloitte, which was hired by Abraaj to examine its business earlier this year, showed that a cash shortage led the firm to “commingle” investor money with its own money, according to a document seen by Reuters.

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Abraaj subject of legal proceedings by second creditor

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

Abraaj meets shareholders and creditors to allay concerns

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As allegations mounted, Abraaj met its creditors earlier this month to reach a standstill deal, which the firm said was backed by the vast majority of its secured creditors.

However, the Kuwait fund refused to join the secured creditors in the proposed debt freeze agreement.

Air Arabia posted a 5 per cent rise in net profit for the first quarter of 2018, beating analysts' forecasts, on the back of strong demand and cost reduction.