Fund managers seek good governance

Governance, good regulation and availability of market data and prices help African fund managers decide on investing into other African markets, according to a survey of 50 African asset-managers for the African Exchanges Linkage Project (AELP) project. Key factors when they choose new markets are: market regulation (91% of replies), followed by investor regulation and availability of market data and prices (90% each).

Other top criteria that help fund managers choose where to invest are: levels of dealing price, efficiency of execution and commission (86%), the quality of companies and investment opportunities (also 86%), corporate, social and governance criteria (84%) and availability of research (80%). Three quarters of investors said they were reluctant to invest in small and illiquid markets or where valuations are excessive. Only half decide to invest in a company based on its dividend policy, while valuation and governance are the top factors.

Comments from asset managers interviewed for AELP Buy-Side survey

Asset managers in Nigeria and the francophone West African countries are the most optimistic about prospects for Africa’s economies. In the AELP poll, some 97% of the surveyed Nigerian asset managers are optimistic about the continent, with average assets of $364 million under management, followed by 85% of surveyed francophone asset managers, who averaged $416 million of assets managed. Average across all the survey respondents, including a couple of South African managers, was $4.1 billion in assets under management.

Optimism is also strong among asset managers surveyed in Mauritius (80% optimistic), Morocco (73%), Nairobi and Egypt (each with 65% of responses optimistic). Nearly half (46%) of respondents manage assets with investment horizons over five years, another 23% for three to five years.

“The results of this survey confirm the high level of professionalism of African fund managers using world-class standards and criteria in their decision-making. This is really reassuring for the success of the AELP initiative,” says Dr. Edoh Kossi Amenounvé, President of ASEA.

The poll evaluates the appeal of different investment markets in the AELP, which brings together seven leading African securities exchanges to boost trading, investment and information links. AELP is procuring a technology platform to link stockbrokers, so that a broker on one exchange can send investors’ orders to an executing  broker on another exchange for execution.

The AELP is a joint initiative by the African Securities Exchanges Association (ASEA) and the African Development Bank to unlock pan-African investment flows, promote innovations that support diversification for investors, and address depth and liquidity in the markets. It is funded by the Korea-Africa Economic Cooperation (KOAFEC) Trust Fund through the African Development Bank.

The AELP exchanges are: Bourse Régionale des Valeurs Mobilières (BRVM, integrating eight West African countries), Casablanca Stock Exchange, The Egyptian Exchange, Johannesburg Stock Exchange, Nairobi Securities Exchange, The Nigerian Stock Exchange and Stock Exchange of Mauritius.

Cross-border trading between the seven markets totalled $1.1 billion in 2019, and was at over $500 million in the first quarter of 2020, according to the participating markets. The “African Listed Securities” assets across these exchanges offers equities investments in more than 1,050 companies, including Africa’s most promising, profitable companies and global leaders. Investors will also buy or sell bonds, exchange-traded funds (ETFs) and derivatives if they are listed on the participating Exchanges.

ASEA supports African economic integration and the African Continental Free Trade Area. The AELP will promote free movement of capital and investment.

About ASEA

The African Securities Exchanges Association is the premier association of the 25 securities exchanges in Africa who have come together with the aim of developing Member Exchanges and providing a platform for networking. ASEA was established in 1993 and works closely with its members to unlock the potential of the African capital markets.

Vision

To enable African Securities Exchanges to be key significant drivers of the economic and societal transformation of the year 2025.

Mission

To provide a forum for mutual communication, exchange of information, co-operation and technical assistance among its members, to facilitate the process of financial integration within the region for the effective mobilization of capital to accelerate economic development of Africa.

Zambia Forest lists on Lusaka Securities Exchange

Zambia Forestry and Forest Industries Corporation PLC today (12 February) brought welcome relief to the Lusaka Securities Exchange when it broke a 6-year listing drought. The listing was for the full 400 million shares, after an offer of 160m shares (40%) at ZMW2.06 each to raise ZMW330m ($22.5m). The forestry firm will use the proceeds from selling 70m of these shares for working capital, expenses and capital spending.

Zaffico is the biggest company in establishing, managing and selling exotic roundwood in Zambia and manages 51,659 hectares in pine and eucalyptus plantations plus some 50,000 hectares of unplanted land. It sells mature trees harvested as well as poles for transmission, fencing and construction.

According to the prospectus, dated 6 December, the total share offer included a sale of 90m shares from Zambia’s state-owned Industrial Development Corporation (IDC). The offer opened on 11 December. The sponsoring broker is Pangaea Securities. It was the LuSE’s first public offer and listing in 6 years since Madison Financial Services in mid-2014. The share offer was extended by 8 days but closed on 29 January.

In the financial year 2018, Zaffico’s revenue was ZMW244.7m (up from ZMW208.2m in 2017), earnings before interest, tax, depreciation and amortization (EBITDA) was ZMW163.5m (ZMW148.2m) and net profit was ZMW119.6m (ZMW114.5m). Zaffico has also been authorized to sell confiscated rosewood mukula logs and logs harvested before harvesting mukula was banned. In August 2019 it was reported that the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) had decided to include mukula trees in its Annex II listing. Rosewood has a high value in China for making furniture and is being widely harvested across Africa while Zambia has imposed bans and lifted them from time to time (Lusaka Times estimates that some $2bn of mukula revenue was stolen by a cartel).

Nigerian Stock Exchange launches SME Board

Photo credit: Nigerian Stock Exchange

Dynamic Nigerian entrepreneurs are in focus after the Nigerian Stock Exchange launched a growth board for fast-growing small and medium enterprises (SMEs) to help  businesses raise long-term risk capital and grow.

At the 29 January the bourse outlined the services on offer for businesses in the growth cycle. Services offered include: pre-listing diagnostics, institutional services (such as audit, financial advisory, legal advisory, corporate strategic advisory), investor relations, analyst coverage, corporate access and corporate governance.

According to the press release , Oscar Onyema, OON, CEO of the exchange told of collaboration at the launch: “We have partnered with relevant stakeholders to design a suite of cost-effective services to give listed companies a competitive edge within their respective industries while stimulating investors’ interest through enhanced information delivery.”

The new board has Entry Segment for companies with market capitalization from ₦50m ($136,000), compared to Standard Market for companies with market capitalization from ₦500m. Investors choose segments according to their investment preferences.

There other boards include the Main Board for well-established companies with a track record of commitment to high standards of disclosure and corporate governance. The Alternative Securities Market (ASeM) focuses on small to mid-sized companies. The Premium Board was added in August 2015 for companies that meet the most stringent listing criteria of capitalization, corporate governance and liquidity and aims to provide a platform for greater global visibility to attract global capital flows and reduce the cost of funding. 

Mr Onyema outlined the contribution of SMEs to jobs and growth in Nigeria: “SMEs have contributed about 48% of the national Gross Domestic Product (GDP) in the last 5 years, according to the Nigeria Bureau of Statistics. This segment of the economy also accounts for 96% of operational businesses and 84% of employment.

“Despite these significant contributions, SMEs face significant challenges, including lack of right-sized and right-priced financing. With the launch of the Growth Board, the Exchange is, therefore, offering issuers relaxed entry criteria as well as less stringent ongoing listing requirements to allow for greater accessibility to finance, global visibility and credibility through corporate disclosures.”

SEC Nigeria clears Nigerian Stock Exchange demutualization

Next step in the long demutulization of Nigerian Stock Exchange will be a court ordered meeting and an extraordinary general meeting. The demutualization is set to transform another of Africa’s most dynamic exchanges.

Last month (January 2020)  the bourse received a letter from the Securities and Exchange Commission Nigeria with “no objection” to its planned conversion from a not-for-profit entity limited by guarantee into a profit-making, public limited liability company owned by shareholders.

Oscar Onyema, CEO said (in a press release): “With this consent, the Exchange will proceed quickly to the next phase of holding a Court Ordered Meeting and an Extraordinary General Meeting to pass requisite resolutions including the approval of the draft Constitution; basis of allotment and split of shares between members; approval of new Board of Directors; and approval of new corporate governance and regulatory structures.”

In March 2017 the Members of the Exchange passed resolutions that authorized the Council and Management to proceed with the process. President Muhammadu Buhari signed the Demutualisation of The Nigerian Stock Exchange Bill into law on 29 August 2018, authorizing NSE to convert to a shareholder-owned public company limited by shares.

Seychelles MERJ Exchange IPO closes 28 Feb

The MERJ Exchange, the national securities exchange of Seychelles, has extended its $4 million initial public offer (IPO) to 28 February in the form of tokenized shares. The exchange already listed the tokens on itself by introduction on 7 August 2019 and opened the IPO on 10 September.

The exchange, previously known as Trop-X, says it is the world’s first fully regulated exchange that can handle both securities and digital assets, has a fully regulated post-trade processing infrastructure and works with a central clearing model. It operates a stock exchange for equities, debt and derivatives and says it will be first global market to offer the full cycle in primary and secondary markets in digital assets.

At the time of issuing the prospectus (27 August 2019) the bourse had 31 listed equities and 2 debt issues with market capitalization of $382.7 million. There were 3 members and 5 listing sponsors.

The MERJ Exchange shares are tokenized into digital assets. The offer is for tokens representing 1,652,893 securities at $2.42 per share, to be traded in USD. This will be 16% of the total shares if issued in full giving a valuation of $25m for the exchange. The minimum raise for the IPO to go ahead will be $500,000, the minimum subscription per investor is $2,000 (826 shares) and $10,000 (4,132 shares) from within the USA.

MERJ Exchanges plans to spend the offer proceeds on IT advisors and consultants, increasing its staff and marketing.

The total share capital is 15 million ordinary shares with a par value of $0.03 each. This has been tokenized to 8,684,207 tokenized shares which are currently listed.

It is starting to attract international partners including Jumpstart Securities in the US and Globacap in UK for the offer. The sponsor advisor for the offer is PKF Capital Markets (Seychelles) Ltd.

According to the investment deck (available here), it has big plans to increase the number of issuers from the current 33 to 111 by the end of year 2, boost the total market capitalization (already $1 billion according to a January 2020 newsletter) and increase the number of sponsors and brokers, as well as liquidity. It will cut trading fees from current 0.5% to 0.15% and have a capital raise fee of 0.3%.

MERJ aims to position itself as a key regulated system as blockchain technology transforms the way the world delivers value, including tokenization of illiquid assets including real estate, shares in small and medium enterprises (SMEs), copyrights and collectables such as art. It hopes to take on global incumbent exchanges which have legacy structures and stakeholders that are not yet ready to tackle the change.

From MERJ Exchange investment deck

The exchange was incorporated in 2011 as Trop-X (Seychelles) Ltd, received its licence to operate the Seychelles Securities Exchange in June 2012 and went live in August 2013 with the first equity listing. It became the national numbering agency and launching debt and derivatives exchanges in 2014. It listed its first Eurobond in 2016 and started working on the digital asset project with the Ethereum Alliance. It changed name in December 2018 and did its first tokenized listing, of its own shares, on 7 August 2019. Operational partners include Euroclear and Strate in its partners.

Ed Tuohy, CEO of MERJ Exchange, says in the investment deck: “MERJ has spent years establishing the infrastructure, the regulatory licences and the technology. We can now move decisively.”

According to the deck: “MERJ enjoys a number of key structural and organisational advantages which put us firmly ahead of the competition. These are: vertical integration, regulatory approval, agile organization, respected jurisdiction, live and operational, direct access platform.” The structure is MERJ Exchange Ltd and 2 wholly owned subsidiaries, MERJ Clearing and Settlement Ltd and MERJ Depositary and Registry Ltd.

The regulator Financial Services Authority Seychelles is an associate member of the International Organisation of Securities Commissions (IOSCO) and meets similar regulatory standards as all global regulators. MERJ is an affiliate member of the World Federation of Exchanges (WFE).

Seychelles is not listed on tax avoidance blacklists but is on the grey list of the European Union (with 31 countries including Namibia and Botswana) and Oxfam. By comparison Mauritius was removed from all EU lists in October 2019 but remains on the Oxfam grey list.

The Seychelles regulatory structure allows MERJ to integrate overseas organizations that are licensed and regulated in a recognized jurisdiction and there is no requirement that members have a presence in Seychelles.
It aims to provide seamless direct access for individual users using mobile and web apps.

For more information and to apply for the offer look at the MERJ Exchange website or the offer page on Globacap and US investors should speak to their broker.

NOTE: This article does not constitute investment advice, the purpose is news information. The writer is not affiliated to MERJ Exchange. Read the full prospectus, available here.

African exchanges link sets 2021 start date

Seven of Africa’s largest securities exchanges are set to have an active link by the first quarter of 2021, according to an article on Bloomberg.com today 30 December.

The article quotes Karim Hajji, President of the African Securities Exchanges Association (ASEA) and CEO of Casablanca Stock Exchange. He says the African Exchanges Linkage Project (AELP) will enable brokers on the Casablanca bourse, the Bourse Régionale des Valeurs Mobilières in Abidjan, the Johannesburg Stock Exchange, the Nigerian Stock Exchange, the Stock Exchange of Mauritius, the Nairobi Securities Exchange and the Egyptian Exchange to place orders for securities on the other trading platforms.

The aim is to transform the number of trades on exchanges and boost free movement of capital across Africa. AELP is an initiative of ASEA and the African Development Bank (AfDB), and was boosted last November 2018 by a grant of $980,000 from the Korea-Africa Economic Cooperation Trust Fund (KOAFEC) through AfDB.

Hajji also told Bloomberg that the International Finance Corporation is funding a study of the potential for privatizing state-owned enterprises through partial listings on African exchanges. These would boost capital-market development, raise funds for governments and the companies to carry out investment programmes and broaden investor participation.

He says: “We want to improve the contribution of capital markets to the growth of the continent and also position African exchanges as the gateway for the development of the continent”.

Disclosure of interest – writer is Project Manager for AELP

Helios Towers raised $364m in London IPO

Mobile telephone infrastructure company Helios Towers raised $364 million and listed on the London Stock Exchange yesterday 15 October. The stock HTWS launched at the bottom of the target price range at 115p and traded in a range of 115.00 – 126.98 over the day. Excluding the “greenshoe” extension the offer raised $318m, according to the London Stock Exchange (LSE).

Gokul Mani, Head of Primary Markets – Middle East, Africa & India, LSE, said in an email: “London Stock Exchange continues to be a strong partner to companies across the Middle East and Africa. Four of the five largest IPOs from the region this year have listed on our market. London’s capital markets offer deep liquid pools of capital, connecting issuers from the Middle East and Africa with long-term international investors, supporting dynamic companies, infrastructure development, and economic growth in the region. ”

In total, 124 companies from the Middle East and Africa (MEA) region are listed in London and have raised over $35 billion in equity issues. There are also 242 active MEA bond issuers who raised nearly $143bn. Of the top 10 initial public offers (IPOs) on the LSE in 2019, 4 are from MEA region. According to a Bloomberg report; “The London market is particularly quiet and Helios is one of several African and Middle Eastern companies that are helping to keep it alive.”

The share offer allowed shareholders including Millicom International Cellular SA and Bharti Airtel Ltd. to sell down their stakes. It was founded in 2009 with $350m backing by London-founded private equity firm Helios Investments alongside investors including George Soros and Madeline Albright, according to this report on Quartz .

Helios has more than 6,800 mobile telecommunications towers spread across five African countries (South Africa, Democratic Republic of Congo, Ghana, Republic of Congo and Tanzania) which it rents to mobile phone providers such as Vodacom, MTN and Airtel. It plans to use some of the IPO proceeds to keep pace with fast-growing consumption of mobile data in Africa, expand into new markets, build more towers and roll out fourth-generation (4G) mobile services. We wrote about the IPO here.

Another major mobile operator IHS Towers is raising $1.3bn via debt markets with 2 issues closing next week, according to Bloomberg, while American Tower Corp is buying a third provider, Eaton Towers Ltd. for $1.85bn.

Quartz cites Matthew Edwards, head of research for the region at research firm TowerXchange, there are 158,000 towers in Africa and “towercos” own 39.3%. There are expected to be more than 600m subscribers to mobile phones by 2025.

Towers can bring revenues to rural communities and land-owners. According to Quartz “As part of efforts to cut down costs, towercos are increasingly investing in hybrid power solutions like lithum-ion batteries and solar power. There’s a net upside for local communities housing towers given the possibility of reduced diesel consumption for generators and an accompanying reduction in emissions and pollution.”

This distinguishes Helios Towers, according to this LSEG backgrounder: “One thing that differentiates Helios Towers Africa from some of its competitors is that every site it operates also contains a mini power station. ‘This provides our customers with the uninterrupted power needed for mobile networks,’ explains Kash (CEO Kash Pandya), who is optimistic about the company’s prospects for the future. ‘It’s an exciting time to be in telecoms in Africa and a very exciting time to be in towers too.’”

$1.8bn Helios Towers closing London IPO on 14 Oct

Heliso Towers raising in London for Africa expansion and 5G

Africa’s next mega-listing on the London Stock Exchange is an African company that operates 7,000 towers in the mobile telecommunications sector that continues to show strong growth. According a a recent report on Reuters, Helios Towers Ltd has priced its initial public offering (IPO) at 115-145 pence per share on 2 October, implying a total valuation of $1.42 billion to $1.79bn.

According to the report, the deal close books on 14 October and first day of trading is expected on 15 October. Bank of America/ Merrill Lynch International, Jefferies and Standard Bank are joint global coordinators while Renaissance Capital and EFG Hermes are joint bookrunners. Helios is planning a free float of about 25% of its shares.

The pricing is down from earlier suggestions of up to £2bn ($2.47bn), including in the Financial Times, when the listing was first announced on 12 September. There have been several global listings this year including e-commerce company Jumia in New York, telco Airtel Africa and payment provider Network International in London. Recently the share prices of both Airtel and Jumia have been weak.

Reuters quotes one source familiar with the Helios deal: “It’s a really good business in a strong sector, telecoms in Africa is the sort of growth story that appeals in this low-growth environment (globally)”.

According to Kash Pandya, CEO of Helios Towers, in a report on website Total Telecom: “The Sub-Saharan Africa telecommunications market is and will continue to be one of the most exciting and high growth in the world. The underlying demographic and macro-economic trends are compelling: a young, growing and increasingly urbanized population whose demand for high-quality mobile voice and data services continues unabated, which is being further fuelled by expansion of 3G and 4G services and one day 5G services; and GDP growth that across our markets is expected to be 4.5%. per annum to 2024.”

Helios rents towers in 5 countries to telecommunications companies such as Airtel, MTN, Orange, Tigo and Vodacom. It has entered the competitive South African market, operates in Republic of Congo and Ghana, and is the only provider of towers in Democratic Republic of Congo and Tanzania. It reached earnings before interest, depreciation, taxes and amortization (EBIDTA) of $201m at the end of the second quarter of 2019, after 18 consecutive quarters of growth in adjusted EBIDTA.

It aims to raise $125m by issuing new shares in an initial public offer (IPO) and to use the money to expand, including into other fast-growing markets such as Senegal and Morocco and potentially into Angola and Ethiopia. The offer would also allow shareholders, including the International Finance Corporation and telecommunications firms Millicom and Bharti Airtel, to sell some of their shares.

Helios was founded in 2009 and is incorporated in Mauritius, although it will set up a holding company in London chaired by Ghanaian businessman Samuel Jonah.

Market conditions in 2018 caused both Helios and Eaton Towers, another telecoms company, to cancel plans to list internationally. Eaton Towers, slightly smaller than Helios Towers, was sold to American Tower in May in a deal which gave it an enterprise value of $1.85bn, according to the FT.

Naspers gives Europe its biggest consumer tech listing

Naspers has pulled off a dramatic restructuring of its holdings to unlock value after the successful listing of Prosus on Euronext Amsterdam stock exchange and simultaneously on the Johannesburg Stock Exchange (JSE). Prosus Group is valued at EUR120 billion ($134bn) and is Europe’s biggest consumer Internet firm and the third in value on the Amsterdam bourse after Royal Dutch Shell and Unilever.

South Africa’s Naspers is Africa’s most valuable company and still owns some 73% of Prosus. It has spun off its global Internet investments into Prosus including the largest stake (31%) of China’s Tencent and the largest stake (28%) stake in Mail.Ru, a giant Russian internet company, reported to be worth $1.4bn.

According to an announcement in Amsterdam: “The Prosus Group’s businesses and investments serve more than 1.5 billion people in 89 markets, and are the market leaders in 77 of those markets. The Prosus Group’s consumer internet services span the core focus segments of classifieds, payments and fintech as well as food delivery, plus other online businesses including e-tail and travel. The Prosus Group aims to build leading companies that create value by empowering people and enriching communities.”

Other investments include Russia’s Digital Sky Technologies (which invests in Facebook, Groupon and Zygna), Indian e-commerce start-up Swiggy, Takeaway.com, Germany’s Delivery Hero, investment in Brazil and e-commerce in the Middle East through Souq.com as well as financial services firms PayU and Wibmo.

In May 2018 Naspers sold its 11% shareholding in India’s Flipkart for $1.6 billion after buying it for $616m (Walmart bought 77% of Flipkart for $16bn in its biggest acquisition as it sought to square up to Amazon and local competitors for domination of the growing Indian market.

Although Euronext Amsterdam bourse set a guide price of €58.70 per share, investor enthusiasm was high as the shares opened trading at €76 and reached a high of €77.40, up 32%, on the first day before closing the week at €73.90. News reports say the market valuation of Prosus is based mostly on the Tencent holding and does not count many of the other investments.

Unlocking value in Naspers

Naspers had made what has been described as “the best venture capital investment ever” when in 2001 it bought 46.5% of Chinese Internet tech company Tencent with an initial investment of $32 million, which had grown to $175bn in value by March 2018, according to Bloomberg. It has also made huge profits by selling some of its Tencent holdings but remained with 31.1%.

Naspers has been listed on the JSE since 1994, and its investors are predominantly South Africans including the Government Employees Pension Fund (GEPF), managed by the Public Investment Commissioners (PIC). Before the spinoff it made up 25% of the JSE’s total market capitalization, and investors had to scale back their holdings to avoid over-concentration, so that the total value of Naspers was less than that of its shares in Tencent, ignoring the other companies.

After the spinoff, Naspers share price fell nearly 30% and it became only 15% of the JSE market capitalization.

The Amsterdam listing opens the global holdings to a wider pool of investors and should permit reassessment of both the value of both Prosus shares- Naspers still owns some 73% of Prosus which has also – and allow for future capital raising. One of the biggest investors in Naspers is the South African Government Employees Pension Fund, managed by the Public Investment Commissioners.

$314m for African tech start-ups

Naspers is seeking to find similar media, e-commerce, consumer, fintech and other successes in Africa. It has appointed 48-year-old Phuthi Mahanyele-Dabengwa as CEO, its first black and first woman chief executive, according to Quartz. She was previously chief executive of Shanduka Group, an investment company founded by South Africa’s President, Cyril Ramaphosa. In October 2018 Naspers announced a $314m fund to invest into promising African tech start-ups.

History of Naspers

Naspers was set up in 1915 as De Nasionale Pers Beperkt (National Press Ltd) to promote Afrikaner nationalism and it continued to support the National Party over the decades until 1989, throughout apartheid.

The first newspaper was Die Burger in 1915 and magazine Die Huisgenoot in 1916 (both originally name De.. ). Naspers started publishing books in 1918. In 1985 it set up M-Net, the first pay-TV in southern Africa.

(Disclosure: the writer owns Naspers and Prosus shares)

Executive pleads guilty as collapse of $14bn Abraaj hits PE flows into Africa

The ongoing collapse of the giant Abraaj platform in the world’s biggest private-equity insolvency has hit flows into Africa-focused private-equity funds. Former Abraaj managing partner Mustafa Abdel-Wadood is cooperating with New York prosecutors after pleading guilty in a Manhattan court 2 weeks ago. He could face up to 125 years in prison.

Abraaj was founded in 2002 and based in Dubai. It was one of the world’s most influential emerging-market investors and acquired the Aureos private equity funds in 2012 (as reported in this blog) with the support of key Aureos investor CDC. At the time of the collapse Abraaj managed almost $14 billion on its platforms with 30 funds and holdings in health-care, energy, lending and real estate in Africa, Asia, Latin America and Turkey.

Abdel-Wadood, age 49 years and a citizen of Egypt and Malta, was arrested in April in New York while taking his wife and son to look at universities, according to this 28 June report on Bloomberg news. In a prepared statement in a Manhattan Court on 28 June he choked back tears as he said: “I knew at the time that I was participating in conduct that was wrong.. I ended up drifting from who I really am. For that, I am ashamed.” He is under house arrest subject to $10m bond.

He is one of six former Abraaj executives facing racketeering and securities-fraud charges. Founder and chief executive Arif Naqvi, from Pakistan but a UK resident and regular participant at Davos conferences, was arrested in London in April and detained at Wandsworth Prison. In May he was released on conditional bail of £15m ($19m) in May while fighting extradition to the US (see this report in the Financial Times . Other former executives charged were Chief Financial Officer Ashish Dave and managing directors Sivendran Vettivetpillai, Rafique Lakhani and Waqar Siddique.

Anonymous warnings had been sent to potential investors in September 2017, according to a 5 May  Bloomberg report . The email, entitled “Abraaj Fund 6 Warning” stated: “The governance is not what it appears but employees are afraid to speak or partners entrenched so don’t speak,” the email read. “There is no smoke without fire. Be the hero in your firm and uncover the truth by asking simple questions.”

However, Abraaj answered queries to investors’ satisfaction although the $6bn fund eventually did not go ahead.

According to press reviews of the governance lapses that had led to the collapse, expenses at Abraaj had been running higher than income from management and performance fees on the funds leading to multimillion dollar operating losses. The group borrowed, and in the 9 months to March 2018 financing costs came to $41m. It hoped to sell assets to avoid a cash crunch but the deals were repeatedly delayed, according to The Economist.

Money had been moved out of funds to cover losses, according to the US Securities and Exchange Commission (SEC). It says that Naqvi and Abraaj Investment Management Limited (AIML) misappropriating $230m from the Abraaj Growth Markets Health Fund (AGHF), which closed at $1 billion in 2016, between Sept 2016 and June 2018. The funds were supposedly for acquisitions but the SEC says Naqvi commingled the assets with corporate funds of AIML and its parent company, Abraaj Holdings – essentially moving them into the company’s bank accounts.

Four limited partner (LP) investors in the Abraaj Healthcare fund, including Bill & Melinda Gates Foundation and the International Finance Corporation, raised concerns, hired investigators and commissioned an audit. The news broke in February 2018 and Abraaj went for liquidation in the Cayman Islands and the United Arab Emirates in April 2018. It decided to restructure, so AIML was set up to manage the funds in 2018 and Naqvi was moved from being CEO of the funds, according to Private Equity Africa news website, which has been covering this story extensively.

According to the 28 June Bloomberg report Abdel-Wadood described the alleged conspiracy, which related to hiding Abraaj’s poor financial condition and convincing new investors to put up more cash, including lying to U.S.-based investors during meetings in Manhattan in 2016 as they sought to raise $3 billion for a new fund. The money they raised wasn’t spent the way investors were told, he said: “Put simply, money was co-mingled that should have been separated, and investors were not told the truth.”

Liquidators have been seeking other fund managers to take over the funds but in each case a share of LPs must approve the change of manager and Abraaj works with 500 LPs.

At the end of 2018, private equity house Actis was cleared to acquire 16 Abraaj funds covering Africa and Asia, including sub vehicles and legacy funds taken over from Aureos, and according to The Economist talks continue on the African funds, while Franklin Templeton is talking about taking over the Turkish fund. In May, US-based TPG said it would become custodian for the healthcare AGHF fund and in 2018 Abraaj returned the money it owed, plus interest.

The Economist quotes Linda Mateza of South Africa’s Government Employees Pension Fund, an Abraaj investor, saying: “We cannot afford not to invest in private equity because of the potentially higher returns.”

According to the 5 May Bloomberg report the audit into AGHF “had a ripple effect on private equity activity in emerging markets, and local buyout activity in the Middle East came to a near standstill”. The Economist magazine commented in May “Many large institutions have stopped investing in Africa and the Middle East, its home turf. In the year after its troubles became public, buy-out funds focused on the region raised just $1bn, a third of their annual average in the previous five years” citing figures from Private Equity International.

 “The firm’s problems were real. Its collapse last year consumed millions of dollars of investors’ money, the reputation of Dubai’s financial regulator and Abraaj itself. Even as rivals divide up the firm’s former empire, it threatens to cause yet more damage.” The article says Abraaj still owes over $1.2bn to investors. A letter by lawyers for investors in the $1.6bn Abraaj Fund IV is reported to claim that at least $300m went towards “wrongful transactions” and other funds could be owed tens of millions.

Do auditors help investors?

The Financial Times suggests that Abraaj’s auditor KPMG, which “exonerated the firm just a few weeks after the scandal broke” may have had a conflict of interest: “It transpired that KPMG had close ties to senior people in the business: the chief executive of KPMG’s Dubai arm had a son who worked at Abraaj, and one executive, Ashish Dave, had spent time at both Abraaj and KPMG”. KPMG also worked for companies that Abraaj invested into.

PwC, which became the liquidator for Abraaj, found a large funding gap and that the firm spent beyond its means and used other people’s money to fund the gap. The article interviews various experts.  Eamon Devlin, partner at MJ Hudson, an asset management consultancy that advises private equity investors, suggests changing auditor every 3 years, much like a listed fund has to, so that a 10-year fund gets through up to 3 different audit firms. He also says that investors should get “more investigative powers and responsibilities to look into these potential conflicts”.

One private equity executive says the industry should introduce requirements already used in US, UK and other places that an auditor working on one part of the business is not allowed to provide services to another part. Ludovic Phalippou, a finance professor at the University of Oxford’s Saïd Business School who authored the textbook Private Equity Laid Bare said; “[The Abraaj case] shows how much freedom there is for investors to be proactive. If they had been more proactive, [the alleged mishandling of funds] would not have gone unnoticed.”

Affiliate link: Phalippou writes on Amazon “The intention is to have a book that can be read more like a novel than like a regular textbook. In order to have long-lasting impact on readers, I believe in making things as simple as possible, boiling everything down to the essence, going straight to the point, and, most importantly, writing in an informal and hopefully entertaining way. The objective is for the reader to open this book with anticipation of having a good educational time. “