An inordinate delay in finalisation of the $1.77-billion K-Electric deal has affected the business of Abraaj Group that now faces a liquidation case filed by a Kuwaiti pension fund in the Cayman Islands.
Kuwait Public Institution for Social Security (PIFSS) on Thursday said it filed a petition in the Grand Court of the Cayman Islands for the liquidation and winding up of Abraaj Holdings – the largest private equity firm in the Middle East and Africa. Hearing of the case will take place on June 29.
The pension fund has published a legal notice in the United Arab Emirates’ daily The National. PIFSS said the decision to file the petition came following default on a $100-million loan it had given to Abraaj Holdings, which was due on June 3.
People close to the Abraaj Group said the group’s founder blamed Pakistan’s bureaucracy for some of its financial woes. The group was expecting to get half of the $1.77 billion worth of sale proceeds from the sale of its shares in K-Electric.
However, the deal has remained stuck for the last almost two years due to delay in issuance of a national security clearance certificate by the Privatisation Commission. The commission has withheld the certificate because of non-settlement of dues of over $1 billon on account of gas and electricity supply to K-Electric.
The National Electric Power Regulatory Authority (Nepra) also set a lower multi-year tariff for K-Electric that disappointed the Abraaj Group and Shanghai Electric Power.
The Abraaj Group owns 66.4% equity stakes in K-Electric through KES Power. It had announced to sell its stakes to Shanghai Electric Power. The Abraaj Group says that K-Electric was the going concern and the prospective buyer was ready to take ownership of liabilities to the extent of its shareholding. However, the buyer and the seller have not been able to secure the regulatory approvals.
The Abraaj Group rose to prominence during the last over 15 years. The people close to Abraaj Group’s management said that the element of hatred among the Arabs against the Abraaj was another reason behind recent financial troubles. Before the Kuwati Fund, a Saudi investor also pulled out its investment, according to them.
The Kuwaiti fund alleges that Abraaj can’t repay a $100 million loan and $7 million in interest, according to a story published by The Wall Street Journal this week. The newspaper further stated that the Kuwait fund also would not go along with other creditors in giving Abraaj more time to restructure its debts.
Before the Abraaj Group, the Bank of Credit and Commerce International (BCCI) was another international bank founded in 1972 by Agha Hasan Abedi, a Pakistani financier. The BCCI was also pulled down by Europeans and Arabs. There were also allegations that the BCCI was involved in money laundering.
On July 7, 1991, Hong Kong Office of the Commissioner of Banking (forerunner of the Hong Kong Monetary Authority) ordered BCCI to shut down its business in Hong Kong on the grounds that BCCI had problem loans and the Sheikh of Abu Dhabi, the major shareholder of BCCI, refused to provide funds to the Hong Kong BCCI. Hong Kong BCCI was liquidated on July 17, 1991.
People familiar with Abraaj’s affairs feared that the Arabs were trying to make the Abraaj Group another BCCI.
However, Abraaj Holdings is trying to settle its debts. The Wall Street Journal has also reported that Cerberus Capital Management LP offered $125 million to acquire the private-equity business of Abraaj Group of Dubai. It added the Abraaj’s executives are pinning their hopes on the Cerberus bid to bring stability while it works out financial obligations with creditors spooked by questions raised about its financial practices.
Abraaj held a meeting in Dubai with investors, creditors and others on Monday, saying in a news release later that a proposed sale was discussed.