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Wed 3 Jul 2019 10:23 AM

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Middle East has 'moved on' from Abraaj, says ADFG

Abraaj collapse created challenges for VCs raising funds from international investors, according to Global Ventures' Noor Sweid

Middle East has 'moved on' from Abraaj, says ADFG
Shuaa has a legacy investment, a very small investment, in Abraaj, according to Jassim Alseddiqi, CEO of Abu Dhabi Financial Group.

The Middle East has moved on from the collapse of the Abraaj Group, its biggest private equity fund and one of the world’s most influential emerging-market investors, according to the CEO of Abu Dhabi Financial Group (ADFG).

The Abraaj Group, which was led by former CEO Arif Naqvi, at one point managed $14 billion in assets before it was forced into liquidation last year after investors including the Bill & Melinda Gates Foundation commissioned an audit in relation to the misuse of investor funds.

Companies including Sharjah low-cost airline Air Arabia reported losses of up to $83.5 million due to its exposure to Abraaj. In May this year, the carrier’s CEO Adel Ali called the embattled private firm “version two of Lehman brothers”.

But speaking to Arabian Business, CEO of ADFG Jassim Alseddiqi said, “[Abraaj had] a negative impact of course, but we are past that. This was last year, the region has, I think, moved on and just like Abraaj was a disappointment, there are lots of successes in the region that we have to celebrate”.

Alseddiqi said one such success is ADFG’s planned merger with Dubai investment bank Shuaa Capital, in which it is the largest shareholder, creating a listed entity with $12.8 billion assets under management.

The deal will see Shuaa issue 1.47 billion new shares to ADFG’s parent company Abu Dhabi Capital Management (ADCM), in return for the entire issued share capital of ADFG.

Shuaa had posted $6.8 million in Q1 losses due to legacy provisions for its exposure to Abraaj, though Alseddiqi said the merger deal is irrelevant to the losses.

"Shuaa has a legacy investment, a very small investment, in Abraaj. It is less than 5 percent of its [Shuaa's] assets so this is not relevant at all,” he said.

Challenges for VCs

Noor Sweid, General Partner at growth-focused venture capital firm Global Ventures, said Abraaj has created challenges for VCs raising funds from international investors.

“I think it just creates challenges and questions when VCs try to fundraise… We have [felt the effect of Abraaj]… When we’re fundraising, a lot of our international investors ask us, ‘How is your governance different to Abraaj’s?’” she said.

Sweid added that the private equity insolvency case has also “up-levelled the governance required, which is a good thing for the region”.

When asked whether the Middle East has recovered from the Abraaj collapse, Sweid said, “It depends on the day, it depends on the news. These news cycles can be short, these news cycles can be long.”

Guilty plea

Six former Abraaj executives, including CEO Naqvi and managing partner Mustafa Abdel-Wadood have been charged by US prosecutors for their part in the alleged scheme to defraud investors.

Last week, Abdel-Wadood pleaded guilty to conspiracy charges and agreed to cooperate with US authorities in the investigation into the insolvency case.

Naqvi, however, had maintained his innocence. The former CEO gave up control of Abraaj last year after it was revealed that revenue hadn’t covered operating costs for years

Other former executives who were charged include chief financial officer Ashish Dave and managing directors Sivendran Vettivetpillai, Rafique Lakhani and Waqar Siddique.

The Dubai Financial Services Authority (DFSA) this week said its investigation into Abraaj will help prevent any UAE companies from taking part in unlawful activities.

“The DFSA acted quickly and appropriately in the matter. We have turned our attention to investigation. That investigation is well resourced and has all the right people associated with it. And the outcome would be a credible deterrent for any future replication of such activity,” CEO of DFSA Bryan Stirewalt told Arabian Business.

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