Kuwaiti pension fund, the Public Institution for Social Security (the "Fund"), filed a petition against the Dubai-based private-equity fund, Abraaj Group ("Abraaj"), in the Cayman Islands on 22 May 2018.
The petition states that Abraaj is unable to repay a loan of USD $100million and USD $7million in interest on the due date, 3 June 2018 – this Sunday. The petition alleges that Abraaj has confirmed that the debt will not be repaid. Abraaj reportedly owes over USD $1billion in bank loans.
Abraaj has historically been a key player in the region, managing USD $13.6 billion of investment at its peak in 2016. Its core focus is emerging markets across the globe, utilising investments in private equity, private credit, impact investing and real estate.
News of the petition by the Fund follows months of turmoil for Abraaj. This stems from a controversial allegation by its health-care fund's investors (including the high profile Bill and Melinda Gates Foundation) that Abraaj has been mismanaging investments, financing its own operation instead of medical infrastructure in Africa and Asia as intended.
Investigations are ongoing and any potential regulatory or legal repercussions remain to be seen. The impact on Abraaj has been widely reported, including: the handing over of day-to-day management of the Group from the founder, Arif Naqvi, to two co-chief executive officers; the restructuring of the group and subsequent departure of several senior executives; and reports that Deutsche Bank is looking to sell its stake in Abraaj.
The petition was filed on the same day that it was reported that United States private equity firm, TPG, is in talks with Abraaj to take control of the troubled health-care fund. If the petition is successful, it could push Abraaj into liquidation of its assets, and recent attempts to restructure the health-care fund would be futile. Alternatively, Abraaj could enter into negotiations with the Fund to restructure its finance. Either way, the filing of the petition is a bold move, and one which forces both parties to come to the table.
As a creditor of Abraaj, the Fund has the right to present a winding up petition in accordance with Cayman Islands Bankruptcy Law.
If Abraaj is unable to pay its debts the courts of the Cayman Islands have the right to force its winding up and distribute its assets to creditors and shareholders (compulsory liquidation).
If the petition is successful liquidators will be appointed to realise and distribute the assets of Abraaj to its creditors in order of priority (winding up). The shareholders would be the last priority. Abraaj would then be dissolved.
Abraaj has the option of negotiating with the Fund in order to secure or restructure its debt. Given Abraaj's efforts to resolve its recent issues, this option remains a real possibility, as long as the parties are able to reach a satisfactory agreement.