With a thick, salt and pepper mane and wide set brown eyes that sit prominently on a square shaped face, Arif Naqvi looks every bit like a successful Pakistani born, British businessman. In January, Naqvi was at the World Economic Forum in Davos, Switzerland at a panel on global health where he shared a stage with Bill Gates.
In a Shakespearan twist, the Bill and Melinda Gates Foundation as well as three other investors in Naqvi’s $1 billion health-care fund had recruited auditors a few months before in 2017 to trace their investments into the fund, which was one of at least 12 funds in the massive private equity giant Abraaj Group.
Based in Dubai, Naqvi had founded and grown Abraaj Group to become the poster child of the glittering success of emerging market growth funds, run by people whose third world birth credentials gave them a sheen of credibility in understanding third world economics.
Abraaj has multiple investments in Kenya ranging from hospitals, casual dining and manufacturing.
According to a June 2018 Bloomberg article titled The Downfall of Dubai’s Star Investor the Wall Street Journal revealed the inquiry a week after the Davos stage was shared and a subsequent review by Deloitte LLP found that the Group had dipped into not only the health care fund, but another one of the funds too.
By the time the whole story began to unravel, the Group was found to be indebted to the tune of a billion dollars, as it had taken loans to finance its operational expenses which had far outstripped the management fees it was contractually bound to limit itself to for each fund.
By February this year, Naqvi’s world would begin crumbling rapidly and he scrambled about getting loans from anyone who would listen. One such sympathetic ear was businessman Hamid Jafar, from the Emirate of Sharjah, who gave him $217 million against a post-dated cheque that later bounced.
Now those Miratis do not play when it comes to bounced cheques and this quickly transformed into a criminal matter, leading to a three-year jail sentence on August 26 where the sentence was read out while Navqi was out of the country. This quickly led to an out-of-court settlement two days later, which is permissible under the law.
Naqvi’s case will be a classic test case for Dubai’s attempt to establish itself as one of the cogs in the wheel of non-Western financial centres.
As the global financial crisis has demonstrated, financial centres are established not only by the markets in which transactions thrive, but by the regulatory frameworks that underpin investor confidence that mechanisms exist for recovery of funds where possible.
The same Bloomberg article further quotes from the Deloitte Report: “While all the money has since been accounted for and there is no evidence of embezzlement and/or misappropriation, the accountants did observe a lack of adequate governance, including segregation of duties and the overall weakness in the control framework.” Wadar Siddique, the Abraaj Group head of risk and compliance, was also Naqvi’s brother in law.
Earlier in the year as Naqvi scrambled about trying to get funds to cover the billion dollar hole in his accounts, he gave a personal guarantee to Air Arabia, a discount airline on whose board he sat.
The purpose of the personal guarantee was to enable the airline to give Abraaj a loan of $75 million. It was further disclosed that the airline had earlier invested about $336 million of its liquid assets in Abraaj funds.
The firm is now under court-supervised restructuring, with a report from PwC, the liquidator, quoted as saying that key financial statements were either missing or non-existent.
The company produced only consolidated financials, not separate ones for the asset management and holding companies thereby making it difficult to analyze how money moved between the two.
The focus has now turned to the Dubai Financial Services Authority, who ideally are the regulator of this Dubai-based, but Cayman Island-registered company.
For a firm that had $13.6 billion in assets under management from investors in multiple jurisdictions, that is certainly not an ice cream parlour business. If the Dubai government is sincere about its commitment to creating a globally accepted financial centre, it will have to play the effective oversight role that is used burnish financial hub trophies.
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