Move comes weeks after MENA's largest low-cost carrier disclosed exposure of $336 million to funds managed by the Dubai-based firm facing restructuring due to allegations of investor funds' misuse
The founder of troubled private equity giant Abraaj Group has stepped down from the board of low-cost carrier Air Arabia, a few weeks after the airline disclosed exposure of $336 million to funds managed by the Dubai-based firm.
A statement issued by Air Arabia said the airline’s board of directors met on Thursday August 9 to discuss the resignation of board member Arif Naqvi, adding that a replacement will be nominated within the coming weeks.
Abraaj is undergoing a court-supervised restructuring after it was accused of borrowing money from its own funds to meet operating expenses without investors’ consent.
The private equity firm at one point owned 17% of Air Arabia, which is publicly listed on the DFM. The carrier is believed to have loaned Abraaj over $100m.
Tariq Qaqish, managing director of the asset-management division at Mena Corp. Financial Services in Dubai, said the exposure is “way bigger” than anyone expected.
"What is shocking is that the company invested almost 10 percent of its total assets and all their investment book with one company,” he told Bloomberg at the time.
While Air Arabia’s exposure won’t have a significant impact on its daily operations or liquidity status, it poses serious corporate governance and strategic risk for the Sharjah-based company, according to Joice Mathew, head of equity research at United Securities in Muscat.
"I am surprised that the company had more than 70 percent of its AED1.5 billion investment portfolio exposed to a single fund and this was never flagged by the auditors or questioned by the shareholders."
Air Arabia’s 2017 Annual Report revealed that the airline used auditor KPMG, which audited Abraaj and around nine of its biggest funds, including those where investors say money was misused.
The airline announced on Thursday a 12% drop in net profit from AED261m to AED 230m for the first half ending June 30, 2018 compared to the same period last year.
However, the company’s turnover for the first six months of 2018 totalled AED1.8bn, an increase of 6% compared to AED1.716bn in the corresponding period last year.
Air Arabia’s strong profits are registered despite the economic pressure that airlines have witnessed in the second quarter of this year, which was driven by lower yield margins, higher fuel prices and seasonality shift in traffic that the market has experienced.
The airline also saw strong growth in passenger demand, as it flew 4.2m passengers during the first half of this year, while its average seat load factor stood at 79%.