By Lolade Akinmurele – BusinessDay
Africa focused Private Equity (P.E) firm Abraaj’s imminent liquidation means its shareholding in eight Nigerian companies are hanging in the balance.
These companies include Indorama Eleme Fertilizers and Mouka Foam Ltd, where it invested an undisclosed amount under its Sub-Saharan Africa fund III in October 2016 and April 2015 respectively. The others are Bridge Clinic, which it invested an undisclosed amount in five years ago in 2013; Therapia Health Ltd, another recipient of Abraaj funds to the tune of $5 million in April 2012; and C & I Leasing PLC, which got $10 million in September 2010.
C&I Leasing first attracted Abraaj funding in June 2006, after securing a $4 million investment from the P.E firm. Computer Warehouse Group (in August 2009), Custodian & Allied Insurance (in August 2008) and AOS Orwell Ltd (in December 2006) make up the 8-man list of Nigerian companies exposed to Abraaj. “They may have to sell their holdings to pay off their clients depending on the strategy of the new fund manager,” one source with knowledge of the matter said.
“The older investments are challenged, in that they have struggled to sell them off for some time now but my guess is that Mouka and Indorama could make good buys,” the source said. “They are however likely to be sold below stock due to the naira devaluation.”
Of the eight, C&I Leasing, Custodian and CWG are the only companies to be listed on the Nigerian Stock Exchange (NSE), and their stocks have returned 34 percent, 35 percent and 0 percent year to date respectively, according to NSE data.
C & I gained 5.2 percent on Tuesday, outperforming an industry average of -1.98 percent, according to Bloomberg data. CWG, provider of IT services and computer networking solutions to businesses, was flat at N2.50 while Custodian and Allied Insurance also traded flat at N5.27, is up 4.9 percent from June 12 when Abraaj first filed plans for liquidation. C& I and CWG are also trading higher than their June 12 share prices, in defiance to Abraaj’s downfall.
Abraaj Holdings, once one of the developing world’s most influential investors which holds investments worth over US$2bn in sub-Saharan Africa alone, plans to file for provisional liquidation in the Cayman Islands as it battles allegations of misused funds.
The Dubai-based investment firm plans to file before June 29 when a court hearing of a petition to liquidate Abraaj Holdings by Kuwait’s Public Institution for Social Security is scheduled, the people said, asking not to be identified because the matter is private. No final decisions have been taken on the timing for the filing, according to news reports.
“The implication is longer term and more subtle,” Andrew Alli, Chief Executive Officer (CEO) at Africa Finance Corporation, said in response to BusinessDay questions. “Abraaj was a champion emerging markets investor and its downfall will lead to a possible minor reassessment of investing in such markets by institutional investors and will affect Africa PE funds,” Alli said in a tweet Monday.
A court-supervised provisional liquidation would allow Abraaj to restructure debt, negotiate with creditors and sell assets, according to a Bloomberg report Tuesday. It would also allow a moratorium on the holding company’s unsecured claims. The filing would also enable Abraaj to continue talks with Cerberus Capital Management LP for a deal to acquire its fund management operations, excluding the $1 billion healthcare fund, the people said. Cerberus would prefer Abraaj to file for Chapter 11 bankruptcy in the U.S. to facilitate the deal.
The interest of investors, creditors and broader stakeholders “is paramount and we keep these constituents front of mind as we responsibly explore effective options to maintain the stability and continuity of the firm,” Abraaj said in an emailed statement. The company is “continuing to work intensively and collaboratively with all of its stakeholders to resolve outstanding obligations.”
Abraaj once managed almost $14 billion for institutions and supranational agencies from the U.S., U.K. and other countries. The company had been under pressure since February when some of its investors commissioned an audit to investigate the alleged mismanagement of money in its healthcare fund, which led to its decision to return $3 billion to investors and put a new $6 billion fund on hold.
Kuwait’s PIFSS said last week it filed a petition for the liquidation and winding up of Abraaj Holdings after it defaulted on a $100 million loan that was due on June 3. The fund holds a stake in Abraaj Holdings and had provided $731.8 million in loans and investments by 2013, it said. Since then, it has got back $346.2 million.
A review of Abraaj’s finances found that there was commingling of Abraaj’s own money in the health-care fund and its fourth private equity fund, according to a summary of a report by Deloitte. Abraaj still owes $94.6 million to its so-called Private Equity Fund IV, but all the money has been accounted for and there’s no evidence of embezzlement or misappropriation, according to the report.
Deloitte also said there was a lack of adequate governance at Abraaj and an overall weakness in its control framework. The firm faced a cash shortage when the sale of Pakistani utility K-Electric was delayed, the accounting company said.
The Dubai Financial Services Authority said it’s “aware of various matters” involving Abraaj Group, according to a statement earlier this week. “Relevant matters are under our attention,” the regulator said in a statement. “The DFSA will act in the interest of all investors. No further comment can be made at this time.”