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Abraaj Capital, LPs at odds over fund misuse, investments

06 February, 2018

Dubai-based private equity firm Abraaj Capital is being investigated by some of its Limited Partners, or investors, over allegations of fund misuse and is said to have told them that its investment in Hyderabad-based Care Hospitals has not met its expectations.

According to a report in The New York Times, the PE firm has informed the LPs of its healthcare fund that the hospital operator’s pre-tax earnings have declined from $14 million to $8 million. Abraaj hasn’t marked down the value of its investment to reflect lower earnings, the report said.

However, a spokeswoman for Abraaj denied the reports that the PE firm was unhappy with its investment in Care Hospitals but said it wouldn’t comment on the company’s financials for confidentiality reasons.

“CARE Hospitals is an anchor investment of the Abraaj Growth Markets Health Fund. We remain excited about the investment and the role it plays in delivering affordable, accessible and high quality care to middle and low income communities in India,” she said in a statement to VCCircle.

The spokeswoman also said that the PE firm is looking forward to exploring additional investment opportunities in the country.

Abraaj had acquired a majority stake in Quality Care India Ltd, which operates Care Hospitals, in January 2016 in a deal that valued the target company around $270 million. The PE firm likely invested in the hospital chain through its Abraaj Growth Markets Health Fund and other funds.

The NYT report comes barely months after VCCircle reported in November that Care Hospitals CEO had resigned and would be replaced by a partner from Abraaj Capital.

Meanwhile, international media reports have also said that some of Abraaj Capital’s 24 investors in Abraaj Growth Markets Health Fund were alleging misuse of funds. These investors are the UK-based CDC, France-based Proparco, World Bank arm International Finance Corporation and the Bill and Melinda Gates Foundation.

The four LPs have hired Ankura Consulting Group to conduct an audit on why the funds drawn by the PE firm were not used, The Wall Street Journal reported on Friday.

The NYT report also said that CDC and Proparco demanded a forensic audit to rule out the use of funds for the PE firm’s own operations.

A Proparco spokesperson told VCCircle the firm was watching the development closely, but could not comment. CDC, IFC and the Gates Foundation did not respond to requests for comments till the time of filing this article.

Separately, in a media statement, Abraaj has denied allegations of fund misuse. It said that the drawn funds were not used because there were regulatory delays over the deals and that the unused funds had been returned to its investors at the end of December 2017.

Abraaj has also hired auditing firm KPMG “to verify all receipts and payments” made by the healthcare fund, it said. Although the terms of the LP agreement allow the fund to retain called capital in situations where an investment is delayed, but still approved and not cancelled, Abraaj returned all unused capital to its investors by December 2017, the statement said.

*This article has been modified after including comments from Abraaj Capital.

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Abraaj Capital, LPs at odds over fund misuse, investments

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