Abraaj was a giant in the MENA market and left a hole in the thoughts and pockets of many institutions. As a behemoth of private equity firms in Dubai, the shockwaves that were sent through the markets were seismic.
Problems began to surface in early 2018 when allegations emerged that Abraaj’s health fund had been misappropriated. Abraaj founder Arif Naqvi and a handful of senior executives found themselves at the centre of an ongoing legal battle, facing extradition to the U.S.
Naqvi and Abraaj denied wrongdoing and blamed unforeseen political and regulatory hurdles for a delay in releasing capital. However, after Abraaj defaulted on loans, Kuwait’s Public Institution for Social Security and a fund linked to Sharjah-based Crescent Group’s forced the company into a court-supervised restructuring.
Subsequently, Abraaj Investment Management Ltd., which managed the private equity funds in Dubai, and its parent, Abraaj Holdings Ltd., filed for liquidation. As the story unfolded PricewaterhouseCoopers LLP, helping to oversee Abraaj’s restructuring, said the group’s main revenues hadn’t covered its operating costs for many years. This had resulted in Abraaj borrowing to fill the gaps and wound up owing creditors more than $1 billion.
Abraaj’s fallout eroded investor confidence in private equity companies in emerging markets, and specifically Dubai. Abraaj had $13.6 billion in assets under management. Since it began unravelling, private equity firms, not just based in Dubai, but based in the GCC have raised almost no money despite strong performances almost everywhere else.
However, to put the controversy into perspective, it was not too long ago that the collapse of Lehmann Brothers sent shockwaves across the global financial system. The DFSA were swift to respond to Abraaj collapse with 315m USD in fines.
DIFC is home to some of the world’s leading investment houses as well as emerging market investment houses, of which all are required to adhere to the highest standards of corporate governance and transparency dictated by the DFSA. It continues to be one of the most stable jurisdictions outside the major financial centres of London, New York and Singapore.
It is clear now, that governance has firmly become a centre issue for many operators in the region and companies are taking serious steps to ensure that the correct systems are put in place, both internally and via third party verification.
If private equity firms in Dubai and across the Gulf can learn from Abraaj’s mistakes, whilst demonstrating high standards of corporate governance and integrity, there is really no limit to potential growth over the next 10 years.