KARACHI: Embattled Dubai-based private equity fund, Abraaj Capital, has received a bid of $125 million from Cerebrus Capital Management to acquire its private equity business, according to a Wall Street Journal (WSJ) report.

Earlier reports had said the deal “could be worth up to $600m”, but the final offer has reportedly come in much lower. Two companies were conducting their due diligence for a possible acquisition of the fund which fell on bad times in February when allegations of misuse of investor money first surfaced.

Those companies were Colony Northstar Inc and Cerebrus Capital.

But on Monday Bloomberg reported that Colony Northstar had withdrawn its interest in acquiring Abraaj “after its due diligence efforts raised concerns about the firm”. The report cited “people with knowledge of the matter”.

Last week one of Abraaj’s big creditors, Kuwait’s Public Institution for Social Security, said that the fund will not be able to repay a $100m loan along with $7m in interest by June 3, when the payments fell due. The Kuwaiti creditor opened liquidation proceedings against Abraaj in court in the Cayman Islands, according to reports that cited court documents.

Fate of K-Electric unclear should the deal go through

Abraaj executives held a day-long marathon meeting in the Dubai office of their law firm with their lawyers, creditors, advisers and two co-chief executives as well as Arif Naqvi, the embattled firm’s founder, in attendance, according to the WSJ report. The meeting was called to discuss the Cerebrus Capital offer, and a debt standstill agreement that Abraaj is trying to reach with all its creditors since it ran into financial difficulties following the allegations of misuse of investor funds.

In a statement released after the meeting, Abraaj said “secured creditors are expected to imminently conclude a standstill which will provide Abraaj the ability to meet its obligations in an orderly fashion.” But the problem remains the unsecured creditors, like the Kuwaiti fund that has filed the suit.

According to a Reuters report after the meeting on Monday, Abraaj’s debts are estimated around $1 billion, and in the meeting it was agreed that all secured lenders would get paid while the unsecured ones would have to wait.

“Most of the creditors agreed to the standstill, which would see Abraaj’s debt frozen for around 90 to 120 days, two sources said, estimating Abraaj’s total debt at around $1bn,” Reuters reported on Monday. But Abraaj needs the support of all lenders for the sale to go through. With the Kuwaiti fund holding out, the sale remains in question.

Abraaj has three other businesses besides the one that is being offered for sale to Cerebrus Capital according to its website, though none of the remaining ones are as significant. According to the source cited by the WSJ, the acquisition offer would transfer all existing investor commitments to the new company, but none of the liabilities of Abraaj or its holding company.

Abraaj invested in a controlling stake in K-Electric, Pakistan’s largest vertically integrated power utility, in 2008 but has struggled with effecting an exit from that investment ever since. Delayed government and regulatory approvals have been blamed by management for the situation. It is unclear whether, should a sale materialize, K-Electric will be among those “investor commitments” to be transferred to Cerebrus Capital, or whether it will remain with Abraaj.

Published in Dawn, June 6th, 2018

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