Kuwaiti creditor refuses Abraaj deal, may prompt provisional liquidation

A Kuwaiti creditor is refusing to agree to a debt settlement deal with Abraaj, which could push the private equity firm to seek provisional liquidation, three sources close to the matter told Reuters.

The refusal by Kuwait’s Public Institution for Social Security (PIFSS) to join other creditors in a debt freeze could complicate Abraaj’s efforts to sell its investment management business to New York-based Cerberus Capital Management, the sources said.

On Thursday a PIFSS legal notice was published in UAE daily The National, seeking liquidation of Abraaj and the appointment of FTI consulting as liquidators.

An Abraaj email to Reuters said the firm is aware of the filing in the Cayman Islands by “a single creditor” and that it continues “to engage closely with them to reach a consensual outcome for the benefit of all parties”.

Abraaj, which bankers estimate has debt of about $1bn, is already grappling with allegations that it misused investor money. The Middle East and Africa’s largest private equity firm has denied any wrongdoing.

Two sources said Abraaj had started preparations for applying for provisional liquidation, a process in which a court appoints a liquidator on a provisional basis before hearing or ruling on a petition to wind up a company.

Read: Two more senior executives leave Dubai’s Abraaj – report

Abraaj, which is being advised by Houlihan Lokey, said it was focused on concluding a standstill agreement with creditors, saying the “vast majority” of them backed the debt deal.

Sources said the standstill agreement was needed to help facilitate the sale of its investment management business to Cerberus. Sources also said that PIFSS, an unsecured lender, held out and was given a 48-hour deadline to agree.

SALE TALKS

“The firm is continuing its discussions on the sale of the fund management business and talks are at an advanced stage,” Abraaj said on Wednesday, adding that it was working with potential acquirers and other stakeholders “towards achieving a positive outcome”.

PIFSS has notified Abraaj that it intended to continue a winding up petition it filed through the Cayman Islands last month, the sources said. The next hearing in the process is scheduled for June 29, one of the sources said.

The Wall Street Journal reported last week that PIFSS filed a case in a Cayman Islands court against Abraaj, claiming it was unable to repay a $100m loan and $7m of interest.

Officials at PIFSS were not immediately available for comment. Its management has previously declined to comment on an ongoing legal action.

A sale of the Kuwaiti creditor’s position to debt funds could help to overcome the impasse in the process, the sources said.

Several distressed debt buyers have shown interest in buying the Kuwaiti creditor’s claim, two sources told Reuters on Wednesday, but PIFSS is not willing to sell.

A source familiar with the matter told Reuters that the Kuwaiti petition complicates Abraaj’s efforts to implement the standstill agreement with creditors in an organised restructuring that would be more beneficial to PIFSS than a legal winding down process.

Cerberus, which manages assets totalling more than $30bn, specialises in investments in distressed assets. The US company has not responded to Reuters requests for comment.