Actis awaits yet another approval before finally taking over collapsed Abraaj

Private equity firm, Actis, is set to scale another regulatory hurdle before taking over the assets of collapsed Dubai based PE Firm and major investor in Africa Abraaj Group. This was made known after Actis wrote to the Comesa Competition Commission (CCC) to state its intentions.

“The Commission will, in accordance with the provisions of the regulations, determine among other things whether or not the merger is likely to substantially prevent or lessen competition within the Common Market and whether the merger is or would be contrary to the public interest as provided for under Article 26 of the Regulations,” said the Comesa agency following the Actis application.

“In view of this, the Commission hereby gives notice to all interested stakeholders, including competitors, suppliers and customers of the merging parties to submit written representations to the Commission with regard to the subject matter.”

It would be recalled that in July, Actis assumed the management rights on Abraaj Private Equity Fund IV (APEF IV), a global buyout fund, and Abraaj Africa Fund III (AAF III), a fund for investment in sub-Saharan Africa. The transaction includes 14 portfolio companies which include stakes in Kenyan restaurant chain Java and Brookside Dairy. 

Earlier this year, the Competition Authority of Kenya (CAK) gave Actis the nod to acquire indirect control of Java’s owner, Abraaj Holdings. Apart from Actis Colony Capital bought Abraaj’s Latin America fund and  US buyout fund TPG took transfer of management of the $1 billion healthcare fund.

Prior to Abraaj’s troubles, it has helped build several economies in different ways such as investing in several infrastructural developments. Abraaj has invested about US$3.2bn in over 80 companies in Africa over the past 15 years.

When did Abraaj’s troubles really start

It all started towards the end of last year when investors in Abraaj’s healthcare fund, which includes Bill & Melinda Gates Foundation, the World Bank’s International Finance Corp unit, CDC Group and CDC’s French peer Proparco Group hired U.S. advisory firm Ankura Consulting Group to trace what happened to some of the money they invested in a $1 billion health-care fund for developing economies. The investors wanted to know why some of it had not been used for its stated purpose of building hospitals and clinics. The investigation found out irregularities, including the diversion of funds from the investment to unrelated investments.

Abraaj was founded in 2002 by Arif Naqvi, a former American Express executive and an early player in the Middle Eastern buyout market. Naqvi has worked with Gates for years on Abraaj’s healthcare projects in Africa and Asia. Abraaj began raising the health-care fund in 2015. “Bill was instrumental in that vision because it all started with a discussion with him,” Naqvi said during a panel discussion at the World Economic Forum in Switzerland in January.

According to a fund document reviewed by the Wall Street Journal, in December 2016, Abraaj asked investors in the health-care fund for $414m to pay for a slew of planned deals. By March 2017, Abraaj had acquired an Indian hospital chain, a Kenyan health-care provider and a diagnostics business in Pakistan. It also agreed to finance a hospital in Lahore Pakistan and acquired 1.5 acres of land for a hospital in Karachi Pakistan. However, construction in Karachi was delayed by a ban on new buildings more than two storeys high while the planned hospital had 17 storeys. This delay was communicated to investors in a fund report. A planned hospital in Lagos, Nigeria was also delayed.

Due to the concerns raised by investors, Abraaj appointed KPMG to conduct its own audit. The firm in February this year said that the KPMG review found no misuse of money at the fund. As a result of this issue, a lot of damages had already happened, they could not service their debt and the fundraising was halted. However, another inquiry by Deloitte found that the company had mixed money in the health-care fund and a private equity fund with its holding company. This move was thought to be likely made after encountering “liquidity problems” owing to the delays in the completion of certain deals.

Employees of Abraaj both past and present have also described the working environment at Abraaj as a family office than a powerhouse of private equity. This is because most of the executives are family members even the head of risk and compliance, Waqar Siddique, is also Naqvi’s brother-in-law.

Apart from the health fund, Kuwait’s Public Institution for Social Security on May 22 filed a case in a Cayman Islands court against Abraaj. They are claiming that the company was unable to repay a $100 million loan and $7 million interest by the agreed date.