Colony NorthStar ends talks with Abraaj to acquire fund management unit: Report

Reuters on Thursday reported creditors were seeking legal advice from law firm Clifford Chance on the potential action they could initiate against Abraaj in wake of worries over its ability to repay its debt, two sources close to the matter revealed


LAHORE: Colony NorthStar Inc has ended negotiations to acquire a majority stake in Abraaj’s fund management unit, sources disclosed on Thursday.

According to a report in Bloomberg on Thursday, Colony NorthStar Inc. is said to have walked away from acquiring a majority stake in Abraaj’s fund management unit after its due diligence expressed worries about the Middle East and Africa’s largest private equity firm.

The sources preferred anonymity, because of the private nature of talks.

And Cerberus Capital Management LP is still in negotiations with Abraaj about the stake and is undertaking its own due diligence, the sources revealed.

Also, representatives from Cerberus and Colony NorthStar refused to comment and a spokeswoman for Abraaj shared discussions for divestment of the fund-management business were at an advanced stage.

The spokeswoman refused to share the identity of the parties interested in acquiring a stake or specifically regarding Colony NorthStar.

The sources said negotiations with Cerberus were at a less advanced stage compared to those with Colony NorthStar Inc.

On Thursday, Reuters reported creditors were seeking legal advice from law firm Clifford Chance on the potential action they could undertake against Abraaj in wake of worries over its ability to repay its debt, two sources close to the matter revealed.

In another major blow to Abraaj, WSJ on Wednesday reported Kuwait’s Public Institution for Social Security on May 22 filed a case in a Cayman Islands court against Abraaj, claiming the company is unable to repay a $100 million loan and $7 million interest by the agreed date.

Earlier this week Wall Street Journal reported Chief Financial Officer (CFO) Bisher Barazi of Abraaj’s private equity fund and the unit’s chief operating officer Matthew McGuire quit merely months into their posts after being appointed after a major reshuffle at the company earlier this year.

Previously, Bloomberg reported last week KPMG was said to be undertaking an internal review into its audits of the world’s largest emerging private equity house.

KPMG forms part of the “big four” accountancy and audit firms globally and its UK branch is investigating its Middle East division for any potential irregularities in the valuation of assets of Abraaj and its linked entities.

The sources refused to be identified due to the sensitive nature of the information and KPMG is also reevaluating its examination of Abraaj’s $1 billion healthcare fund which was given a clean chit in February.

The evaluations are said to be underway and the result isn’t clear, sources revealed.

However, KPMG refused to comment on the developments due to a client confidentiality clause, its spokesman said to Bloomberg the firm had undertaken moves to provide investors in the fund a copy of its UAE division audit report from February to “see for themselves what it says.”

However, an initial investigation by Deloitte which was hired by Abraaj after investors expressed their displeasure at KPMG’s audit and clean chit they gave to the private equity house discovered potential discrepancies in its accounting.

Also, Deloitte is said to be sharing its initial findings with the Dubai Financial Services Authority (DFSA), sources privy to the developments told.

And the proximity of ties between top executives at KPMG and Abraaj in Dubai would also come under scrutiny.

Especially the ex-Chief Financial Officer Ashish Dave’s link with KPMG could get reviewed and was said to have shifted between both company’s multiple times.

Previously, it was reported Abraaj had utilized over $200 million of investor money from a $1.6 billion buyout fund for funding its own business.

It added the money wasn’t utilized for investment in companies, people with knowledge of the matter revealed.

People with knowledge of the matter then said Abraaj had utilized some of the funds for its own use as early as this year.