June 7, 2018 / 9:17 AM / 2 months ago

UPDATE 2-Kuwaiti creditor's refusal of Abraaj deal may prompt provisional liquidation -sources

* Abraaj says engaging with one creditor over debt deal

* Failure on debt deal could undermine asset sale -sources

* Cerberus in talks on investment management unit -sources (Adds statement from Kuwaiti fund, quotes, updates dateline)

By Tom Arnold and Davide Barbuscia

DUBAI, June 7 (Reuters) - A Kuwaiti creditor’s refusal to agree to a debt settlement with Abraaj could push the private equity firm to seek provisional liquidation, three sources close to the matter told Reuters.

Kuwait’s Public Institution for Social Security (PIFSS) has refused to join other creditors in a debt freeze, complicating Abraaj’s efforts to sell its investment management business to New York-based Cerberus Capital Management, the sources said.

PIFSS said on Thursday that it filed a petition in the Grand Court of the Cayman Islands for the liquidation and winding up of Abraaj Holdings, which is registered there.

A legal notice published in UAE daily The National, said the fund is seeking to appoint FTI consulting as liquidators.

In an email to Reuters on Wednesday Abraaj said it is aware of the Cayman Islands filing and that was engaging closely with the creditor to reach a deal “for the benefit of all parties”.

The Middle East and Africa’s largest private equity firm, which bankers estimate has debt of about $1 billion, is grappling with allegations that it misused investor money. It has denied any wrongdoing.

Two sources said Abraaj had begun preparing for provisional liquidation, a process in which a court appoints a liquidator on a provisional basis before a hearing or ruling on a petition to wind up a company.

Abraaj, which is being advised by Houlihan Lokey, said it was focused on concluding a standstill agreement with creditors, which it said the “vast majority” backed.

Sources said this was needed to enable the sale of its investment management business to Cerberus. Sources said earlier this week that PIFSS, an unsecured lender, was given a 48-hour deadline to agree.

HARD WORKING PEOPLE

“The firm is continuing its discussions on the sale of the fund management business and talks are at an advanced stage,” Abraaj said on Wednesday, adding that it was working with potential acquirers and other stakeholders.

PIFSS said on Thursday that the decision to file the Cayman Islands petition follows a default on a $100 million loan it had made to Abraaj Holdings, which was due on June 3.

“The funds invested in Abraaj Holdings belong to the hard working people of Kuwait who have entrusted us to invest their monthly savings so that they can retire comfortably when they decide to,” Hamad Mishari Al Humaidhi, PIFSS director general, said in a statement.

“We have a legal, fiduciary, and an ethical responsibility to see this case through till the end and return these funds.”

The next hearing in the process is scheduled for June 29.

The Kuwaiti institution said it bought a stake in Abraaj in 2006 and by 2013 its investments in and loans to the firm totalled around $732 million. The fund has since got $346 million back.

Two sources told Reuters that a sale of the Kuwaiti creditor’s position to debt funds could help to overcome the impasse, adding that several distressed debt buyers have shown interest, but PIFSS is not willing to sell.

Another source familiar with the matter told Reuters that the Kuwaiti petition complicates Abraaj’s efforts to implement an organised restructuring, which would be more beneficial to PIFSS than a legal winding down process.

Cerberus, a U.S. fund managing assets totalling more than $30 billion and specialising in investments in distressed assets, has not responded to requests for comment. (Additional reporting by Saeed Azhar, Hadeel Al Sayegh and Stanley Carvalho in Abu Dhabi; Editing by Ghaida Ghantous/David Goodman/Alexander Smith)

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