Managed by Dubai's Abraaj Group, the $1 billion fund invests in
medical projects
By William Louch, Ed Ballard and Simon Clark
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 3, 2018).
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 william.louch@wsj.com, Ed Ballard at
ed.ballard@wsj.com and Simon Clark at simon.clark@wsj.com
(END) Dow Jones Newswires
February 03, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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