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Courts

Abraaj seeks court-led restructuring as it battles creditors

Abraaj Holdings, once one of the developing world's most influential investors, filed for a court-supervised restructuring as it battles allegations of misused funds.

The buyout firm made the filing in the Cayman Islands to protect the rights of its stakeholders and restructure its debt, according to an emailed statement. The filing seeks to appoint PricewaterhouseCoopers as the provisional liquidator, which will impose a moratorium on all unsecured claims.

The filing "will create a more controlled basis for moving forward, without impacting the day-to-day management of the funds and the underlying portfolio businesses," founder Arif Naqvi said in the statement. "The process of court supervised restructuring will take a few months. I will continue to support this orderly process and help ensure the best possible outcomes for all the stakeholders."

Abraaj's move comes less than five months after some of its investors including the Bill & Melinda Gates Foundation commissioned an audit to investigate the alleged mismanagement of money in Abraaj's health-care fund. Since then, the company, which once managed almost $14 billion for institutions and supranational agencies, has faced growing concerns about its viability.

"This is probably in the best interests of Abraaj creditors. A liquidation-driven fire sale would destroy a lot of value and especially hurt unsecured lenders," Khalid Howladar, managing director of credit and sukuk advisory Acreditus. "This 'pre-emptive' restructuring would support a more orderly debt workout/restructuring with creditors, asset sales and crucially provide a moratorium on unsecured claims."

Bloomberg first reported Abraaj's plans to file for provisional liquidation on Tuesday.

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 that was presented to creditors on June 4 and seen by Bloomberg News. 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.

Mr. Naqvi ceded control of Abraaj's fund management business in February, but is still the CEO of Abraaj Holdings.

Abraaj's application will also protect the company from filings made by some of its creditors. Kuwait's Public Institution for Social Security said last week it filed a petition for the liquidation and winding up of Abraaj Holdings after it defaulted on a $100 million loan. A second creditor, Auctus Fund, also filed a petition in the Cayman Islands to start a process that would allow Abraaj to avoid collapse and repay its debt.

"The restructuring could prompt asset sales at fire-sale prices and the margin calls may lead to disposals before the courts take over," said Richard Segal, a senior analyst at Manulife Asset Management in London. "The liquidators may find that the assets backing the secured credits may not be worth what is owed, making it difficult to predict how much cash will be left for unsecured creditors."