Earlier this year we wrote about the opportunity for secondaries buyers to acquire assets in light of developments at emerging markets private equity firm Abraaj Group.
Now, Abraaj Holdings plans to file for provisional liquidation in the Cayman Islands, according to a report from Bloomberg on Tuesday, citing unnamed sources. The firm declined to comment beyond saying it was continuing to work with stakeholders as well as exploring a potential sale of its fund management business.
The embattled firm was thrust into the spotlight in February after four limited partners in its 2013-vintage Global Healthcare fund hired an auditor to examine the alleged misuse of funds from the vehicle. The results of that audit have yet to be revealed, but the firm has since undergone a series of set-backs, including an exodus of senior staff, a cancelled fundraise and further allegations of misuse of fund capital. Abraaj has denied any wrongdoing.
Sources said in March that secondaries buyers would find it difficult to get comfortable with a large deal – be it backing a spin-out or acquiring a large LP portfolio – due to the fact that most large-scale secondaries buyers are not expert in Abraaj’s niche of growth and frontier market private equity.
Private Equity International has now learned that Abraaj has previously attempted at least two secondaries sales to offload stakes in its own funds held by Abraaj Holdings, the entity which has since been split from the fund management unit.
Toward the end of last year the firm was working with advisor Evercore on a stapled deal process involving interests in several Abraaj funds and a primary commitment to its latest flagship global fund, according to three sources familiar with the matter. The process, which did not proceed past early stages, involved around $200 million of secondaries exposure to Abraaj vehicles and a $100 million commitment to the flagship fund, two of the sources said.
It is understood the stakes were Abraaj Holdings’ GP commitments.
Secondaries firms including HarbourVest Partners looked at the deal and ultimately passed, the three sources said.
Abraaj, Evercore and HarbourVest declined to comment on secondaries sales involving Abraaj.
According to one of the sources, Abraaj again attempted to sell its stakes in three funds in April. The source told PEI an Abraaj partner had approached them offering interests in its 2014-vintage The Abraaj Turkey Fund, 2013-vintage Abraaj North Africa Fund II and 2013-vintage Abraaj Africa Fund III. These stakes represented combined exposure of around $100 million and Abraaj Holdings wanted to sell the interests to shore up its balance sheet capital, the source said.
It is unclear whether the firm ultimately found buyers for the stakes.
It is difficult to obtain a clear picture of the secondaries market for Abraaj fund stakes. One London-based buyer who said his firm had seen a “consistent supply” of Abraaj stakes over the last two years, said he had never been able to close a deal, even when the seller was willing to take a substantial discount to net asset value.
“When sellers are willing to trade at 50 cents on the dollar, we took the view that even though returns stacked up from an underwriting point of view, it didn’t stack up from a reputational risk point of view,” the buyer said. “We had some question marks over the GP’s governance and liquidity.”
Intermediaries say they’re finding it challenging to broker deals, too. The head of one North America-based broker said there had been an uptick in sellers wanting to part with Abraaj fund stakes since February but he “hadn’t been able to get anything over the line” this year. The sizes of the stakes ranged between $10 million and $75 million, he added.
Two large global secondaries buyers Private Equity International spoke to said they had not been offered any stakes in Abraaj funds since February either directly from LPs or via intermediaries, further clouding the picture. Both presumed this was because they had passed up on deals before, so were viewed as unlikely prospects.
One way LPs are managing to offload stakes in Abraaj’s funds appears to be through wider portfolio sales. By slipping a $10 million interest in an Abraaj fund into a bundle of other private equity fund interests, sellers are able to attract buyers for the portfolio on the whole, and these deals are closing, two sources said.
With so much uncertainty surrounding Abraaj and its future, it is not surprising secondaries buyers are still finding it difficult to underwrite LP stake transactions in the firm’s funds.
“If somebody’s going to try and sell a position [in Abraaj funds] now, given all the uncertainty, I don’t think they’re going to get a very good price,” said one buyer who has looked at Abraaj stakes. “I would be surprised if anyone would jump into it without clarity.”