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

Troubled Abraaj Group, which is going for court-supervised liquidation following allegations regarding the misuse of investors’ money, seems to be faced with more problems with each passing day. Now threats of arrest and jail-term are looming over the head of its founder, Arif Naqvi, who is allegedly currently staying in London.

But will court proceedings and potential arrest of Naqvi serve in the favor of investors or will it further jeopardize the operations of the already embattled private equity firm and hem the interests of lenders? 

Will it hamper reaching an amiable solutions?

Dr Habib Al Mulla, executive chairman of the Baker McKenzie Habib Al Mulla, who is representing Naqvi’s case in the UAE, said this move could affect the chances of addressing investors’ concerns in a time-bound manner.

READ: TIMELINE: The rise and fall of Abraaj Group

“The case has come as a total surprise to us at a time when we were negotiating to settle the matter. The criminal charges and threat of arrest are likely to impact the company’s ability to address the claims of creditors and investors,” UAE-based daily newspaper Gulf News quoted Dr Al Mulla saying this.

Moreover this move could also discourage Naqvi from returning to the UAE to negotiate with lenders to find any consensual solution or other alternative to return their money. According to reports, he is in the UK to avoid any risk of arrest in Dubai.

In a cheque bounce case; a UAE court had issued an arrest warrant against Naqvi last week. Three cheques were written as a security guarantee for a $300 million loan given to Abraaj by Hamid Jafar, the founder of the Sharjah-based Crescent Group.

Dubious intentions

“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.

READ: Seven things you NEED TO KNOW about Abraaj Group

“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. 

Woes continue

On the close heels of court’s summons, a former senior employee of Abraaj Group has filed a case with a claim of $2.92 million against the company in the Dubai International Financial Centre (DIFC) Courts.

According to the Bloomberg report, this new case has been filed by Sivendran Vettivetpillai, who is the chief executive officer of a Zurich-headquartered investment firm LGT Impact. 

All eyes on Colony deal

Amidst this entire melee, all eyes are glued on the future of Abraaj Group’s recent deals. On June 21, Abraaj Group had inked a pact with New York-listed Colony Capital, Inc., reaching an agreement for the sale and purchase of the Group’s Latin America, Sub Saharan Africa, North Africa and Turkey Funds management business and the Group’s Limited Partnership interests in the underlying Funds.

However, a Cayman Islands court is expected to pronounce its judgment on July 11 on whether to approve the Colony deal or not.

Earlier on June 19, Abraaj Group announced that a Cayman Islands court had approved a request by the buyout firm for a provisional liquidation of the business. In the wake of this, Abraaj’s chairman, Sean Cleary, had resigned stating the appointment of joint provisional liquidators had made his role redundant.

However, UAE-based private equity experts stated that recent court cases could also affect the smooth liquidation of the firm. 

Is Abraaj fiasco opening doors for others?

As Abraaj stands on the verge of collapse, this situation is expected to create room for other players to expand their portfolio in the region. One such firm, which is aiming to capitalize on the prevailing circumstances, is Amanat Holdings.

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In one of its reports, Bloomberg said that Amanat is scouting for deals as the investment firm seeks to capitalize on the collapse of Dubai-based buyout firm Abraaj Group.

“We want to be number one and now is the real opportunity to gain that position,” Bloomberg quoted Amanat’s managing director Shamsheer Vayalil, as saying.