–Officials claim Arif Naqvi’s arrest would create hurdles in closing deal with Chinese company
ISLAMABAD: As the founder of the collapsed Dubai-based private-equity firm Abraaj Group has been arrested in London, the news has also shocked many in Pakistan, especially his friends and those involved in process of making a deal between K-Electric and Shanghai Electric.
Pakistani emerging markets business magnate Arif Naqvi was arrested at Heathrow airport for “alleged fraud” on the recommendations of the US Securities and Exchange Commission.
Naqvi, who is the founder and chief executive of Abraaj Capital, the holding company of K-Electric in Karachi, was charged with fraud and conspiracy in New York in relation to the collapse of the equity firm he headed. His managing partner, Mustafa Abdel-Wadood was arrested at a New York hotel on Thursday. Mustafa is accused of having committed fraud in purchase and sale of securities, using deceptive devices and contrivances in violation of the code of federal regulations.
Abraaj was the largest private equity player in the Middle East until its collapse last year following a row with investors that included the Gates Foundation over a $1 billion health care fund.
American prosecutors have alleged that the Abraaj executives defrauded their investors, including the Bill & Melinda Gates Foundation.
As per the indictment by US district court, Southern District of New York, in the case between Securities and Exchange Commission and Abraaj Investment Management Limited, Naqvi defrauded the Abraaj Growth Markets Health Fund and the United States investors by misappropriating over $230 million from at least September 2016 until at least June 2018.
While Naqvi and the company falsely reported to the Abraaj Health Fund and its investors that their money would be invested in healthcare-related businesses in emerging markets, Abraaj Investment Management – under Naqvi’s control – misappropriated the money to cover cash shortfalls at Abraaj Investment Management and its parent company, Abraaj Holdings Ltd.
The defendants’ materially false statements, omissions, and deceptive acts violated the anti-fraud provisions of the Investment Advisers Act of 1940.
The commission respectfully requests, among other things, that the court enjoin defendants from committing further violations of the federal securities laws as alleged in this complaint, and order defendants to pay disgorgement, plus prejudgment interest, and a monetary penalty based upon these violations.
As per the indictment, Abraaj Investment Management and Naqvi were investment advisers who owed fiduciary duties to the health fund.
It says Abraaj Investment Management and Naqvi misappropriated over $230m. By December 2016, the defendants began to misappropriate money from the fund. They also took affirmative steps to conceal their misappropriations from investors.
After he started facing cases in Dubai, Naqvi has been active in Islamabad for selling his shares and company, K-Electric.
According to sources, Naqvi, given his close ties to ruling Pakistan Tehreek-e-Insaf (PTI), was much active in finalising a deal between a Chinese firm and the K-Electric.
Reportedly, Naqvi is a close friend and adviser to Prime Minister Imran Khan and has also funded the PTI in the lead up to the general elections. The Abraaj chief reportedly enjoys good ties with Asif Ali Zardari as well. The arrest of Naqvi and cases against him will ultimately affect Abraaj’s stake in Pakistan.
Being the founder of the Abraaj Capital, Naqvi was much interested in sale of the only power company in Karachi, which he has been in control of for the past 10 years.
According to sources, PM Imran Khan was personally taking interest in making the K-Electric- Shanghai Electric Power Company (SEP) deal go down successfully. He reportedly held meetings with SEP teams as well in this regard.
The holding company of K-Electric, KES Power Limited (Abraaj Investment Management Limited), a company incorporated under the laws of the Cayman Islands, which currently owns 66.40% shareholding in KE, has entered into a Sale and Purchase Agreement dated October 28, 2016 (SPA) with Shanghai Electric Power Company Limited.
In terms of the SPA, KES Power has agreed to sell all of its 66.40% shareholdings in KE (Sale Shares) to SEP.
However, the progression of the said transaction is subject to clearance of all dues of K-Electric and issuance of National Security Certificate from the Pakistan government represented through the Privatisation Commission, in accordance with the Original SPA signed on November 14, 2005.
The SEP teams have frequently been visiting Pakistan for clearance of the issues linked with the deal. However, the issues related to security certificate, dues and others were yet to be cleared to finally pave for the deal.
When contacted, Privatisation Commission Secretary Rizwan Malik said the deal was being made between two private firms, so there should not be any major issue in the aftermath of Naqvi’s arrest.
However, the next visit of SEP team to Pakistan will clear how the development would affect the overall transaction. “Our duty is to secure interest of the country while facilitating the deal,” he said.
The arrest of Naqvi will delay the deal which would have boosted the confidence of foreign investors, said sources, adding even if the Abraaj nominates alternate head, he would face issues in executing the deal.
“This is definitely shocking news for both K-Electric and SEP at a time when the deal was being closed,” said an official, fearing that the arrest may even risk the deal.
It may recall here that in October 2016, Abraaj Capital sold its majority 66.4% stake in K-Electric to SEP for $1.77 billion and the consummation of the transaction has been stalled for various reasons.
The government’s stake stands at 24.36 per cent in K-Electric, foreign shareholders hold 3.09pc, public 2.69pc, mutual funds 1.67pc, public-sector company’s 0.13pc, financial institutions 1.48pc and others’ 0.18pc.
According to reports, Arif Naqvi has always denied any wrongdoing related to the bankruptcy. Abraaj, one of the largest emerging-markets private equity investors, claiming $14 billion of assets under management, was sent into a death spiral last year after investors complained about mishandling of their money in the group’s health fund.
