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Private Equity

Abraaj creditor seeks embattled Dubai private equity firm’s liquidation

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Kuwait's Public Institution for Social Security is seeking the liquidation of Abraaj Holdings as creditors step up pressure on the Dubai-based buyout firm that's facing allegations of misused funds.

The fund filed a petition in the Cayman Islands for the liquidation and winding up of Abraaj Holdings after the firm defaulted on a $100 million loan that was due on June 3, the Public Institution for Social Security said in a statement. 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.

"We have a legal, fiduciary and an ethical responsibility to see this case through till the end and return these funds, and secure the best possible outcome for our subscribers and pensioners," PIFSS Director General Hamad Mishari Al Humaidhi said in the statement.

The move is a further blow for Abraaj, once considered to be one of the developing world's most influential investors. It managed almost $14 billion for institutions and supranational agencies from the U.S., U.K. and other countries. The buyout firm has been under pressure since February when some of its investors commissioned an audit to investigate the alleged mismanagement of money in its $1 billion health-care fund.

"Kuwaiti creditors feel they need to act quickly to prevent further deterioration, or they may feel Abraaj is a lost cause," said Richard Segal, a senior analyst at Manulife Asset Management in London. "If one pushes a liquidation, while the others agree to a standstill, they could end up fighting each other, and take their eye off the ball, which gives the debtor a negotiating advantage."

Abraaj is "aware of the filing in the Cayman Islands by a single creditor and we continue to engage closely with them to reach a consensual outcome for the benefit of all parties," it said in an emailed statement Thursday.

Abraaj said it expects its creditors to agree to a standstill on debt payments after a meeting with shareholders and banks on Monday. The company has been selling assets to raise liquidity and is also in talks to sell its asset management division. Societe Generale and Mashreqbank are also creditors to the private equity firm, according to people familiar with the matter.

The petition "raises the specter of a court-ordered liquidation despite the consensual standstill agreement obtained by Abraaj with other creditors," said Khalid Howladar, managing director of credit and sukuk advisory Acreditus. It also makes it "much harder for Abraaj to negotiate effectively on asset sales until after the hearing."

"The firm is continuing its discussions on the sale of the fund management business and talks are at an advanced stage," Abraaj said in the statement. "Potential acquirers are engaging with key regional and international stakeholders and we are jointly working toward achieving a positive outcome."

A hearing on the Kuwaiti fund's petition will take place on June 29, according to a notice posted in Abu Dhabi-based The National newspaper on Thursday. The petition also seeks an order to appoint FTI Consulting as joint official liquidators of the company.