Abraaj Investors Hire Auditor to Trace Money
By William Louch, Ed Ballard and Simon Clark
Four investors in a $1 billion health-care fund managed by Dubai's Abraaj Group have hired a forensic accountant to examine what happened to some of their money, people familiar with the situation said.
The Bill & Melinda Gates Foundation, the World Bank's International Finance Corp. unit, and government-backed development finance organizations CDC Group PLC and Proparco Group pledged about a quarter of the fund's money. Those investors have asked U.S. advisory firm Ankura Consulting Group LLC to audit the fund and trace their money because they want to know why some of it hasn't yet been used for the stated purpose of building hospitals and clinics, the people said.
Abraaj created the private-equity fund with commitments from two dozen investors, including the four now asking questions.
"We are confident that the majority of our investors support the mission of this fund," Abraaj said in a statement. The company said it has appointed KPMG LLP to conduct its own audit of the health-care fund.
Philips NV, the Dutch health-technology company, is also an investor in the Abraaj fund and said it is "committed" to it.
"We remain aligned with their efforts and objectives to build hospital capacity and access to health care in emerging markets," Philips spokesman Steve Klink said.
Between October 2016 and April 2017, Abraaj asked the fund's investors to send $545 million of their pledged money in three tranches, according to quarterly reports for the fund sent to investors and reviewed by The Wall Street Journal. Instead of collecting money upfront when a fund is raised, private-equity firms such as Abraaj typically ask investors to send cash to pay for deals when they occur. Abraaj said in the fund reports that the cash would be used for medical projects in India, Pakistan, Kenya and Nigeria.
By the end of September, only $266 million of that money -- less than half the amount requested -- had been spent, according to the quarterly reports. Typically, private-equity firms spend money within weeks of requesting it. In October, the Gates Foundation and the three other investors asked Abraaj to explain what happened to the rest of the money. Abraaj didn't send investors the bank statements they asked for, people familiar with the matter said.
In December, Abraaj returned $140 million to the fund's investors, but the repayment didn't appease all of them, according to people familiar with the situation.
Abraaj was founded in 2002 by Arif Naqvi, a former American Express Co. executive and an early player in the Middle Eastern buyout market.
Mr. Naqvi has worked with Mr. Gates for years on Abraaj's health-care projects in Africa and Asia. Abraaj began raising the health-care fund in 2015.
"Bill was instrumental in that vision, because it all started with a discussion with him," Mr. Naqvi said during a panel discussion at the World Economic Forum in Switzerland in January. The panel also featured Mr. Gates.
In December 2016, Abraaj asked investors in the health-care fund for $414 million to pay for planned deals, according to the quarterly reports reviewed by the Journal.
By March 2017, Abraaj had acquired an Indian hospital chain, a Kenyan health-care provider and a diagnostics business in Pakistan, according to the quarterly reports. It also agreed to finance a hospital in Lahore, Pakistan, and acquired 1.5 acres of land for a hospital in Karachi.
However, construction in Karachi was delayed by a ban on new buildings more than two floors high. The planned hospital had 17 floors. The delay was communicated to investors in a fund report.
A planned hospital in Lagos, Nigeria, was also delayed, a person familiar with the matter said.
Abraaj has said the delays explain the discrepancy between the amount of money requested and the amount invested, according to people familiar with the matter. Abraaj has said it wasn't obliged to return money because the projects were delayed rather than canceled, the people said. Money only has to be returned if a project is canceled, according to fund documents reviewed by the Journal.
Abraaj's explanation didn't satisfy the Gates Foundation and the other three investors, people familiar with the situation said. The four planned a coordinated response to find out where the money they gave Abraaj went, the people said. In particular, they want to know whether their money ever left a bank account earmarked for investor funds, the people said. If the money hadn't been invested, then it should be easy to prove it was kept in the fund's bank account, the people added.
The four investors jointly asked Abraaj for bank statements in an email, according to people familiar with the situation. Their requests were denied, the people said.
Abraaj is separately seeking $6 billion for what would be one of the largest funds raised for emerging-market investments, according to people familiar with the effort. The firm has collected about $3 billion for that new fund, the people said.
Write to William Louch at firstname.lastname@example.org, Ed Ballard at email@example.com and Simon Clark at firstname.lastname@example.org
(END) Dow Jones Newswires
February 02, 2018 14:25 ET (19:25 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.