Dubai: Abraaj Group, once a rising star in the world of private equity in the Middle East and Africa region, is going for court-supervised liquidation of two of its entities — Abraaj Holdings and Abraaj Investment Managements — to tide over a liquidity crunch, loan defaults and allegations of mismanagement.

Abraaj’s move comes after some of its investors, including the Bill & Melinda Gates Foundation, commissioned an audit a few months ago to investigate the alleged mismanagement of money in Abraaj’s health care fund. Since then, the company, which once managed almost $13.6 billion funds for regional and global institutions, have come under a cloud.

Stand still

The appointment of provisional liquidators imposes a moratorium on the enforcement of all unsecured claims against the company, allowing time for a proposal to be put to creditors for the orderly restructuring of the company.

The move was prompted by legal action by separate legal action by the Kuwait Public Institution for Social Security (PIFSS) and Auctus Fund in the Cayman Islands following loan defaults.

In addition to unsecured lenders and investors, who have claims to the company’s assets, there are a group of local and international banks that have made secured lending to the company, who will now have to wait for the liquidation process to complete to recover their loans.

A group of banks — including Societe Generale, Mashreq, Noor Bank and Commercial Bank of Dubai — have reportedly provided money to Abraaj on a bilateral basis under secured loans.

Banking industry sources and lawyers said these banks have little choice but to wait until Abraaj makes an orderly exit from their portfolios under the liquidation process.

Analysts said while the liquidation could be a long-drawn process, multiple litigations and claims could delay payouts and it is not in the interest of all stakeholders to push the company into a fire sale of its portfolios.

Delayed deal

In addition to the lender litigations and allegations of mismanagement and governance issues, Abraaj is also facing severe liquidity crunch from its inability to complete a deal in Pakistan.

Abraaj’s liquidity position has been eroded as one of its largest-ever exits, the proposed sale of a 66.4 per cent stake in Pakistan based K-Electric, is yet to be completed. The company had agreed to sell the asset to Shanghai Electric Power Co for $1.77 billion in October 2016, but the deal has been held up due to negotiations over electricity tariffs with the government. Sources said the inordinate delay in finalisation of the $1.77-billion K-Electric deal has affected cash flow the Abraaj Group and pushed it to seek liquidation.

New York-based Cerberus Capital Management had made a $125 million offer to buy Abraaj’s investment management business, days ahead the company filed for provisional liquidation in the Cayman Islands last week. It is unclear that if the offer is still on the table. Reuters on Tuesday reported that an Abu Dhabi Financial Group company has made a conditional $50 million offer to the investment management business.

While the complex unwinding of portfolios and colony of claims by creditors, and investors are going to be a long-drawn process, analysts said the Abraaj episode has triggered a crisis of confidence in the region’s private equity industry.