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Mon 26 Mar 2018 05:13 PM

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Dubai's Abraaj said to mull sale of fund unit stake

Sources hint at move as the Middle East buyout firm is roiled by allegations of misused funds

Dubai's Abraaj said to mull sale of fund unit stake
Abraaj founder Arif Naqvi.

Abraaj Group, the Middle East buyout firm roiled by allegations of misused funds, is considering the sale of a stake in its fund management business to raise cash amid heightened regulatory scrutiny and the departure of key executives, according to people with knowledge of the matter.

The group has held discussions with advisers about selling part of the newly separated investment business, which oversees funds globally for institutional investors, the people said, asking not to be identified as the matter is private.

Meanwhile, the markets regulator for the Dubai financial center where Abraaj is licensed is holding discussions with the firm about some investors’ concern that capital in a healthcare fund wasn’t allocated properly, though no formal investigation is underway, they said.

Abraaj, which last month said it would separate the funds business from its holding company, is working with consultants on a “comprehensive review” of its corporate structure, a spokeswoman said in response to queries.

The firm “remains in regular contact and dialogue with its regulators and engages with them on various matters,” she said. A representative for Dubai Financial Services Authority declined to comment.

After an internal review concluded that money in its health fund hadn’t been misused, Abraaj last month said founder Arif Naqvi was ceding control of the fund-management business. The Middle East’s largest buyout company also opted to stop making new investments while it reorganizes its business, and this month said it was returning capital to investors in a new global fund, which had reached a first close of about $3 billion.

Mustafa Abdel-Wadood, a managing partner and global head of private equity at Abraaj, resigned late last year and his departure was disclosed to staff in a note on Sunday, the people said. Abdel-Wadood declined to comment. He will be a non-executive member of the firm’s investment committees, Abraaj’s spokeswoman said, noting that the firm has a “deep bench” of leaders.

Chief Financial Officer Ashish Dave and Sev Vettivetpillai, a managing partner and global head of impact investing, are also among those leaving, the people said. The Abraaj spokeswoman confirmed the executives’ departure.

Some large global buyout funds are weighing investing in Abraaj, though deliberations are at an early stage and no decisions have been made, the people said. Meanwhile, the firm will again start making new investments from some of its funds as early as this week, some of the people said.

The firm’s cash position has been eroded as one of its largest-ever exits, the proposed sale of a 66.4 percent stake in Pakistani utility K-Electric, is yet to be completed, the people said.

The buyout firm 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, the people said.

Some other investors are also looking to reduce their exposure to the firm by selling their stakes in existing funds, the people said.

The Bill & Melinda Gates Foundation, the World Bank’s International Finance Corp unit, CDC Group and Proparco had hired a forensic accountant to examine what happened to some of their money in the health fund, the Wall Street Journal reported February 2, citing people familiar with the matter. Abraaj attributed the discrepancy between the amount of money requested and the amount invested to project delays, the newspaper said.

Within days, Abraaj said a review by KPMG found no wrongdoing, and that all payments and receipts had been properly accounted for and unused capital had been returned to investors. Two weeks later, Abraaj said it has hired independent consultants to review its corporate governance and controls.

The firm also promoted Omar Lodhi and Selcuk Yorgancioglu to run the newly created Abraaj Investment Management.

Founded by Naqvi in Dubai in 2002, the Abraaj Group is one of the largest buyout firms in emerging markets with operations across Africa, Asia, Latin America and Turkey. It bought Aureos Capital in 2012 to expand into Africa and Latin America and acquired a North African private equity fund the previous year from Amundi. Only 20 percent of Abraaj’s portfolio is now in the Middle East, according to the company.

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