Complex Made Simple

Abraaj founder reaches ‘out-of-court settlement’

The National reports that the lawyer of Arif Naqvi, the founder of Abraaj Group, has said that his client has reached an out-of-court settlement with a creditor in a criminal case over a bounced cheque and is waiting to sign off on the deal.

“The parties reached an understanding late on Wednesday night over the main issues to repay the loan. A document is underway of drafting,” Habib Al Mulla, executive chairman of law firm Habib Al Mulla Baker Mackenzie, told The National.

The case relates to a check for $48 million (AED 177.1 million), signed by Naqvi and fellow executive Muhammad Rafique Lakhani, and written to Hamid Jafar, another founding shareholder in private equity firm Abraaj, according to a prosecution document and a clerk at the prosecutor’s office.

Hamid Jafar is the founder of Crescent Group, a privately owned investment management firm. He loaned Abraaj $300m last December, specifically $200 million to Abraaj and $100 million to Naqvi.

The National reports, “The cheque was used as partial security for around $300 million of loans made to Abraaj by Jafar, who claims Mr. Naqvi had no intention of repaying, Jafar’s law firm representative Al Tamimi & Co said in a statement to media last week.”

READ: Will an Abraaj court case help investors or cast shadows on future deals?

Al Mulla defended his client Naqvi, telling the UAE daily that “there was a loan given by the Jafars to Abraaj Group and to Arif – $200m to Abraaj and $100m to Arif – against which they took cheques as security.”

“Both parties knew there were no funds for these cheques, otherwise why should he take $300m if he has $300m?” he continued.

There have been ongoing discussions and several drafts of a proposed settlement between the two parties, and Naqvi has paid $33m of the total $100m to Jafar, Al Mulla said last week.

The out-of-court settlement being drawn up resolves the dispute over the entire $300m loan, not just the cheque which is the subject of the Sharjah court case, Al Mulla said.

“Three cheques signed by Arif Naqvi totaling an amount of $300 million were presented to the bank and subsequently dishonored due to insufficient funds. These cheques stem from an emergency short-term loan made to Abraaj management six months ago without which Abraaj would likely have collapsed,” said Essam al Tamimi, Senior Partner al Tamimi & Co, which submitted the bounced checks to the prosecutor.

“We are pursuing claims for the full sums owing under these cheques. Contrary to claims that have been reported, the cheques in question are not a guarantee but are part of documentation which confirms the accused’s liability to repay the debt on the due date of the cheques,” added Essam.

Essam maintained that the loan was a reflection of the trust placed in Arif Naqvi and in time, however, it has emerged that the promises were not made in good faith and that there was no intention of repaying the debt. 

TIMELINE: The rise and fall of Abraaj Group

Abraaj tumbles down

The firm’s troubles began on February 2nd earlier this year when 4 investors hired independent investigators to look into the company’s $1 billion healthcare fund, after suspected foul play. The 4 investors who backed the Abraaj Growth Markets Health Fund include the Bill & Melinda Gates Foundation, the World Bank’s International Finance Corporation, Proparco Group of France and the UK’s CDC Group.

Soon after, Abraaj hired KPMG to prove there was no wrongdoing in its healthcare fund. The private equity firm claimed that all money drawn from the fund was meant for approved investments. On February 8, Abraaj announced that KPMG found no misuse of money.

By the end of the month, the company that Bloomberg reported to have peaked at $13.6 billion worth of assets in 2017 was to go through a restructuring process. Naqvi has since abandoned control of the fund management business. He remained the CEO of Abraaj Holdings, however.

Investors were unhappy with KPMG’s results, still skeptical of their findings. In response, Abraaj appointed another consultancy firm, Deloitte, to probe its business, including the healthcare fund.

This time, however, the investigator’s findings proved incriminating.

Bloomberg reports that the inquiry by Deloitte found that the company had commingled money in the health-care fund and a private equity fund with its holding company, a move likely made after encountering “liquidity problems” caused by delays in the completion of certain deals, including the sale of Pakistani utility K Electric.

Deloitte’s report accounted for every penny, and supposedly found no evidence of “embezzlement and/or misappropriation.” Yet, the accountants did observe a “lack of adequate governance, including segregation of duties, and the overall weakness in the control framework.”

“It looks like the culture inside Abraaj was never built up to prevent this from happening,” says Sabah al Binali, chief executive officer of Universal Strategy, an Abu Dhabi-based turnaround specialist and investment manager. “You see it anywhere in the world where someone has been hugely successful very quickly. People confuse benefiting from their circumstances with having a successful business model.”

Whether Abraaj can be rebuilt remains to be seen.

READ: Seven things you NEED TO KNOW about Abraaj Group