Emerging markets PE firm Abraaj’s founder faces arrest in UAE for bounced cheque
Arif Naqvi | Photo Credit: Reuters

Authorities in the United Arab Emirates have issued arrest warrants for the founder of private equity firm Abraaj and another executive for issuing a cheque without sufficient funds, according to a prosecution document seen by Reuters.

The warrants are the latest setback for the Middle East and Africa's biggest private equity fund, which has been locked in a dispute with four investors over the use of their money in a $1 billion healthcare fund. Abraaj has denied misusing funds.

The row has shaken investor confidence in the Dubai-based firm, halted its fund raising activities and sparked debt repayment problems, forcing Abraaj to file for provisional liquidation in the Cayman Islands.

The public prosecutor's office in Sharjah, an emirate in the UAE, issued the warrants against Arif Naqvi, who founded Abraaj in 2002, and fellow executive Rafique Lakhani, according to the document, which was dated June 18.

The warrants relate to a cheque for 177.1 million dirhams ($48 million), signed by Naqvi and Lakhani, and written to Hamid Jafar, another founding shareholder in Abraaj, according to a clerk in the prosecutor's office who confirmed the validity of the document.

Neither Naqvi nor Lakhani responded to a Reuters request for comment. Jafar could not be reached for comment.

Naqvi's lawyer, Habib al-Mulla, said he was aware of an arrest warrant issued in the UAE for Naqvi for a bounced cheque of around $50 million. He said the cheque had been submitted to the police by the Jafar family.

"We were in discussions with the Jafars to discuss repayment and that's why we are surprised this criminal action is being taken," Mulla told Reuters. "It's a disruption and we don't know how creditors will benefit from this."

Jafar's lawyer, Essam al-Tamimi, said there were no "ongoing negotiations" to resolve the matter.

"The issue is now a matter for the public prosecutor -- the accused has shown bad faith in signing cheques it is now clear he had no intention of honoring and is refusing to appear to face these criminal charges in the UAE," he said in a statement.

Naqvi's lawyer said neither he nor his client had received any official notification of a legal summons from the Sharjah prosecutor.

Cayman Islands filing

Naqvi in February handed the running of Abraaj to two co-chief executives, split it into Abraaj Holdings and Abraaj Investment Management Ltd (AIML), and put AIML up for sale. He remains the single largest shareholder of Abraaj Holdings.

Last week, a court in the Cayman Islands, where Abraaj is incorporated, appointed provisional liquidators for Abraaj Holdings and AIML as the firm tries to restructure its debt.

Reuters reported earlier this month that Jafar provided Abraaj with a private loan which was later transferred to the Saint Vincent-based Auctus Fund, citing an adviser to his family. Auctus is suing Abraaj in the Cayman Islands for non-payment of debt.

The Cayman Islands filing said Auctus' "predecessor" extended $100 million to AIML on Dec. 21, 2017 to be paid back on Feb. 28 under an oral agreement with Naqvi.

Abraaj Holdings was supposed to provide security for the loan but, according to the filing, failed to do so. Two cheques issued by AIML, dated Feb. 28, to partially secure repayment of the loan bounced on May 3, the filing said.

Naqvi's lawyer said one of those cheques was the one submitted to police by the Jafars.

When asked by Reuters about the arrest warrants and the filing, Abraaj confirmed it had been granted a loan but said that partial repayment had been made and that settlement discussions were ongoing.

"It should be noted that the cheques were provided as part of a security package and as such should not have been submitted to a criminal court," it said in a statement.

"We believe deliberate efforts are being taken to destabilize the positive developments that the group and its joint provisional liquidators have been working very hard to secure," it said, without elaborating.

The punishment for issuing a bounced cheque under UAE law can be jail or a fine.

Abraaj Investment co-CEOs resign

The co-chief executives of Abraaj Investment Management Ltd (AIML) are stepping down from the board of the unit, days after the Dubai-based firm agreed to sell the bulk of the business to Colony Capital.

This is the latest shakeup at Abraaj, the Middle East and Africa's largest private equity firm, which has been bruised by a dispute with some of its investors over the use of their money in a $1 billion healthcare fund.

The group has denied it misused the funds.

Last week a court in the Cayman Islands appointed provisional liquidators for Abraaj Holdings and Abraaj Investment Management Ltd (AIML) as the firm tries to restructure its debt.

Omar Lodhi and Selcuk Yorgancioglu will no longer serve as directors of the board of AIML, the company said in a statement on Monday in response to questions from Reuters.

It added that move does not change their co-CEO titles, although it was not immediately clear what role will they will play in the future.

After the row became public in February, Abraaj's founder, Arif Naqvi, handed the running of the fund to the two co-chief executives, split the group into two and put the investment management business up for sale.

Naqvi, who was CEO of The Abraaj Group when the dispute began, remains the single largest shareholder of Abraaj Holdings.

Last week Abraaj agreed to sell its Latin America, Sub Saharan Africa, North Africa and Turkey Funds management business to U.S. investment management firm Colony Capital.

In the statement on Monday, Abraaj said Lodhi and Yorgancioglu "remain employees of the Group and are fully committed to supporting the Joint Provisional Liquidators in an orderly restructuring process and ensuring the sale" to Colony Capital.

AIML's joint liquidators are from Deloitte and joint liquidators for the holding company are from PwC.

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