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How Did The Abraaj Group Lose Everything?

How Did The Abraaj Group Lose Everything?

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Arif Naqvi, the Pakistani founder of the collapsed private equity firm Abraaj Group, has been released from custody after meeting a record bail payment of a 15 million pound ($19 million) security.

He was arrested in April in connection with charges he faces in the United States of defrauding investors including the Bill & Melinda Gates Foundation. While this all may seem a little confusing, we decided to break down everything that has been going on with the company.

Who is Arif Naqvi?

Arif Naqvi, born and raised in Karach built his reputation as the Gulf’s buyout king producing stunning returns in places few were brave enough to venture, snapping up stakes in a dairy company in West Africa, an upscale office building in Cairo, and a food maker in Colombia. In recent years he promoted the concept of “impact investing,” the notion that private capital can be deployed to alleviate some of the world’s most intractable problems: poverty, climate change, inequality. 

Naqvi began his career with Arthur Andersen in London and American Express in Karachi. In the early 1990s, he joined the Olayan Group in Saudi Arabia, the Kingdom’s largest trading company. In 1994 he started an investment firm in Dubai called Cupola with $50,000 of his own savings. In 1999, Naqvi purchased Inchcape Middle East, for $102 million, with $4.1 million in equity, making it the MENA (Middle Eastern North African) region’s first leveraged buyout.  Naqvi then sold off pieces of the company for a total of $173 million. In 2002, Naqvi founded Abraaj Capital, and in 2012 the company merged with Aureos Capital to become The Abraaj Group.

In 2007, Naqvi was granted the Sitara-i-Imtiaz by the Pakistani government, in recognition of his outstanding service in the field of public services. In Pakistan, Naqvi is known for his humanitarian work. He established the Aman Foundation, a local, not-for-profit trust in Pakistan, focusing on health, nutrition, and education.  In 2015, under the Shajar-e-Aman plantation drive the Aman Foundation planted 2,000 local trees, and 200 flowers at the Hill Park, Karachi. Then in 2016, the Aman Foundation, in collaboration with the Edhi Foundation initiated the annual Edhi Award for pre-hospital care. You can see now why he has been called the “good capitalist.”

What is The Abraaj Group?

The Abraaj Group was a private equity firm operating in six continents, known for its diverse portfolio which included education, healthcare, construction, material, banking, transport, etc. As mentioned before, it was offcially named the Abraaj Group in 2012, after the company’s 2012 acquisition of London-based private equity firm Aureos Capital. This would give Abraaj a foothold in emerging markets beyond the Gulf, then roiled by the Arab Spring, and access to an investor list that included the Gates Foundation.  At its peak, it was valued at $13.6 billion!

The Abraaj Group has also been a pivotal force in helping build regional EM businesses become global businesses, including Careem, where Abraaj was a pivotal force in helping Careem grow before its $3.1 billion acquisition by Uber.

How did this all start?

Troubles at Abraaj began late last year, when investors in the health-care fund, valued at $1 billion, tapped Ankura Consulting Group LLC to track their money. The investigation turned up irregularities, including the diversion of funds from that pool to unrelated investments. While a KPMG (professional network) review commissioned by Abraaj found no misuse of money at the fund, the firm said in February. By then the damage was done. The firm was unable to continue servicing its debt, roughly $1 billion, as deals dried up and fundraising was halted.

The subsequent 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.

While all the money has since been accounted for and there’s no evidence of “embezzlement and/or misappropriation,” according to the summary of Deloitte’s report, the accountants did observe a “lack of adequate governance, including segregation of duties, and the overall weakness in the control framework.”

What is Arif Nawqi accused of?

The Abraaj Group and Arif Naqvi are accused of defrauding investors by transferring investor money into their own accounts and covering it up. The investigation uncovered that was not only happening to with the healthcare fund but with other funds too. A couple of major incidences stick out though.

In one incident, the group is accused of taking $600 million from the healthcare fund and transferring it directly into the bank account of Arif Naqvi and his friends and family. This included his sons and an investment into a business run by his old assistant.

Another incident that is in the spotlight is a dispute about a loan. According to the charges, Naqvi took loans from Air Arabia to cover up discrepancies to the investors. There is also evidence that suggests he might have bribed former Prime Minister Nawaz Sharif and his brother with money from his investors.

So what’s going to happen now?

The group is liquidating it’s assets. The chances that it will ever reach it’s former glory are slim to none. In March, the Abraaj Group put a halt to future projects, which would have been the groups biggest venture yet. Then they started to lay off employees and sell their assets to settle their debt, which has grown to over $1 billion.

This might affect more than just the company though. Dubai’s financial regulator has said it’s “aware of various matters” involving Abraaj. No investigation has been announced. Any discovery of mismanagement at Abraaj risks tarnishing regulators’ reputation and denting confidence in the UAE’s wider financial industry. Already executives at rival regional private equity firms say they’ve had difficulty raising cash and completing deals.

As for Arif Naqvi, we will have to see if he is found guilty of the crimes he is being accused of. With that much money, and so many foreign investors involved, the truth will come out. Stay tuned to see what happens.