Traditionally viewed as the face of Dubai private equity, the Abraaj Group is now receiving bids for its fund management arm for as little as USD 1.

Abraaj Group is selling off assets to repay its debts, which according to PwC's Liquidation Report dated 11 July 2018, include Abraaj Holdings Ltd.'s ("Abraaj Holdings") stake in 12 funds and a Pakistani utility company.

Bloomberg and the Wall Street Journal report a number of key private equity players, including BrookfieldHeliosColony and the Abu Dhabi Financial Group may be in the run to bid for Abraaj Group's assets and regional operations.

By way of background, the Abraaj Group, once the biggest private equity firm in MENA with USD 14bn in assets under management, entered Abraaj Holdings and Abraaj Investment Management Limited, ("AIML") (the Abraaj Group's fund manager) into provisional liquidation in the Cayman Islands in June this year, after allegations that it borrowed money from some of its own funds to pay operating expenses without investors’ consent.  The company’s troubles emerged in February 2018 when some investors, including the Bill & Melinda Gates Foundation, commissioned an audit to investigate the alleged mismanagement of money in its health-care fund (the Abraaj Growth Markets Health Fund known as "AGHF").

AGHF is a USD 1bn investment fund with a mandate to provide affordable, high-quality healthcare to under-served low and middle-income patients throughout Sub-Saharan Africa and South Asia, with performance measured by both financial returns and development impact metrics.

Investors last week announced the appointment of global consulting firm AlixPartners to oversee its separation from the Abraaj Group to ensure continuity and build a stable platform for the future. According to AlixPartners, the recently announced appointment of provisional liquidators over Abraaj Holdings and AIML does not impact the day-to-day operations of AGHF's portfolio. AlixPartners is now working alongside AGHF's senior operational team and the provisional liquidators of AIML to support the search for a replacement investment manager to AGHF.

Following investigations by PwC it was reported that the Abraaj Group's use of multiple layers of leverage to cover operating expenses was unstable and left it sensitive to market volatility ultimately causing a liquidity crisis. Abraaj Holdings owes lenders in excess of USD 1.1bn. Since going into provisional liquidation some of its facilities have defaulted.

PwC also reported various accounting irregularities and an apparent general lack of financial record keeping. Abraaj Group's management explained that its back-office simply could not keep up with the pace of growth and fell behind on bookkeeping.

Some of Abraaj Group's biggest creditors include: Kuwait Public Institution for Social Security, Auctus Fund, Mashreqbank, Commercial Bank of Dubai, Noor Bank, Societe Generale, First Gulf Bank and Arab National Bank. Air Arabia(the commercial airline which lists Abraaj Group's CEO Arif Naqvi as a board member) also reported a c. USD 330mn of exposure.

Another key Abraaj Group entity, Abraaj Capital Limited(based in the DIFC) applied for provisional liquidation on 1 August 2018. The Dubai Financial Services Authority, the DIFC’s regulator, in a statement issued at the end of August also said that it had prevented AIML or any affiliates from removing funds from Abraaj Capital or taking on new clients.

In other Abraaj related news, Arif Naqvi (the founder and CEO of the Abraaj Group) has been sentenced to three years in jail, pursuant to a judgment handed down by the UAE courts on 26 August 2018 in relation to the highly-publicised bounced check case. The parties concerned have subsequently settled out-of-court at the end of last month. Under UAE criminal law, charges based on bounced checks get extinguished once parties reach a settlement, which means that Mr. Naqvi walks free.


The Kingdom of Dubai is the largest and most populous city in the United Arab Emirates (“UAE”) ruled by Sheikh Mohammed bin Rashid Al Maktoum (“SM”).

The emirate is undergoing significant business reforms, having introduced a host of measures such as permitting 100 per cent foreign ownership in onshore entities (up from 49 per cent) and10 year residency visas for professionals and investors, with more reforms due to be announced in September 2018(Khaleej Times). The Kingdom also reformed its bankruptcy laws in December 2016, removing the criminal offence of bankruptcy by default to ease the orderly unwinding of distressed companies (Financial Times).

However, Reuters reported on 20 July 2018 that Dubai is experiencing an economic slowdown; residential property prices have dropped by 15 per cent since 2014 and the Dubai Financial Market is down 13 per cent in 2018. Since the USD 20bn bailout from Abu Dhabi in 2009, Dubai state-linked companies are less leveraged than they were a decade ago, having undergone significant restructuring processes, while Dubai’s growth forecast of 3 per cent GDP in 2018 is attributed to a significant rise in state spending.

This Trade Alert highlights some of the key issues to consider when acquiring loans in Dubai.


Dubai is subject to the federal laws of the UAE but retains rights to administer its own affairs and certain exclusive rights. Its legal system was founded on civil law principlesinfluenced by Egyptian law and Islamic Shari'a law (which constitutes the guiding principle and source of law). Legislation is formulated into codes providing for general principles of law with a significant amount of subsidiary legislation. The federal laws which apply in Dubai are dealing with the most important principles of law including (inter alia) civil and commercial law, civil procedures, companies law, banking and employment.

Unlike other UAE states, Dubai retained its own independent courts and judges. The Dubai courts will first apply federal laws and where federal law is absent, the decrees enacted by the Ruler of Dubai.

Dubai free-zones (such as the DIFC) have different laws and other than for criminal procedures, are independent from the UAE legal system. DIFC laws are modelled on the best practices of the world's major financial jurisdictions to embody the best of international commercial and financial law.


  • Banking Licence is not required for the trading of claims / debt on the secondary market provided no banking activity is carried out.
  • Assignment is the preferred method of transfer over novation.
  • Trusts are not generally recognised in the UAE (only in free-zones such as the DIFC) but the concept of agency is recognised and security is often held via security agents.
  • No withholding tax is charged on interest.


Domestic, non free-zone entities engaged in any of the following activities are required to have a licence from the Central Bank of the UAE:

  • extending advances and / or personal loans;
  • financing trade / business, opening credit lines or issuing letters of credit;
  • subscribing to any capital relating to projects and/or the issuing of stocks, bonds and / or certificates of deposit.

Foreign entities engaging in any of the above activities may be required to be regulated by the Central Bank or be licenced / regulated by their respective governing bodies in their own jurisdiction. Foreign entities will not require banking licences or registration for the purposes of trading / holding claims or debt, unless such trading or holding would require the entity to carry out any of the activities listed above.


In Dubai and the UAE more generally, loans should betransferred by way of assignment of rights and obligations. Most UAE law governed facilities will require borrower's consent, however, in the absence of any express provisions, notice must be given to the borrower and any guarantors of the transfer of the debt for it to be effective by law. This form of transfer by way of assignment of rights and obligations is similar to the English law concept of assignment and assumption.

The English law form of novation should not be used to transfer debt as it will have the effect of releasing any guarantee or security given in respect of the original contract.

Participation agreements can be used in Dubai and the UAE.



In the UAE, there is no concept of trust (as exists at common law). It is unclear whether the courts in the UAE would recognise a foreign trust structure.

The UAE has laws relating to agency with the principal-agent relationship being codified in the UAE Civil Code. The UAE Civil Code provides that "agency is a contract whereby the principal puts another person in the place of himself in an ascertained, permitted dealing". Furthermore, the UAE Civil Code also requires conditions that must be satisfied for an agency to be valid including: (i) the principal has the right to deal himself in the matter which he delegates; (ii) the agent is not prohibited in dealing in the matter delegated to him; and (iii) the subject matter of the agency must be ascertained, and must be such as is capable of being performed by the proxy.


The concept of trust is recognised in the DIFC and governed by DIFC Law No. 4 of 2018, the DIFC Trust Law (the "DIFC Trust Law").

A foreign trust will also be recognised and enforced in the DIFC provided that it is not contrary to DIFC Law and the DIFC Court does not declare that the trust is immoral or contrary to public policy in the DIFC.

The agency concept is also recognised and is codified in Law No. 5 of 2005, the DIFC Law of Obligations and under the DIFC Trust Law.

The use of security trustees and / or security agents is common in the DIFC for secured loans issued in Dubai. The DIFC courts will generally recognise foreign law governed trusts / agency set-ups, however, this point has not been tested and therefore proper interpretation remains to be seen.


Currently, the only tax applicable in the UAE is VAT (although certain taxes are applied to foreign banks on their corporate income). However, under the VAT Law and the Executive Regulation on VAT Law loans, advances or credits, and any interest, dividends or other amounts received under the loan are VAT-exempt.


Security documents are required to be in Arabic and notarised by a notary public in three copies. Notarisation fees differ depending on the size of documents as opposed to the type of security they cover.

If the security is to be registered in a special register, then the registration formalities have to be completed. This may apply to security over immovable and movable assets. 


We appreciate the assistance of Sharon Lakhan and Guido Labriola at Global Advocacy and Legal Counsel with the following discussion of Dubai law, regulation and practice. 


Industrias Metalurgicas Pescarmona S.A. ("IMPSA") - Argentina

The Argentine energy company has recorded revenue of USD 6.8mn during Q2 ending 30 June 2018an increase of 80 per cent year-on-year, as reported by Reorg Research on 5 September 2018. The former management remain under investigation in the "notebook-gate" scandal after IMPSA's vice president Fancisco Valenti was accused in August of paying USD 2.8mnin bribes to former President Kirchner administration government officials. "Notebook-gate" refers to the notes that Mr. Centeno wrote in spiral bound note pads while he was the driver for a senior Planning Ministry official, Roberto Baratta, and which are said to detail around USD 53mn in bribes, although investigators say the real figure could be closer to USD 160mn.

Noble Group Limited (“Noble”)

Noble shareholders have backed a USD 3.5bn debt restructuring on 27 August 2018 to ensure the survival of the debt-laden commodities trader (Reuters). The Singapore-listed company’s shareholders reluctantly supported the plan for a debt-for-security swap that will ultimately leave them owning a mere 20 per cent of the business, with the majority of the group control being passed to creditors. Noble chairman Paul Brough described the restructuring as a “relief”, although shareholder Francis Tay felt “cheated of his hard-earned savings” (Bloomberg).

The support for the restructuring comes following another quarterly lossUSD 128.3mn in the three months to June 2018. The Financial Times reported on 14 August 2018that Noble traded 14.9mn tonnes of commodities in the quarter, now largely made up of coal and metals, in comparison to 71.6mn tonnes in the same quarter in 2014.

House of Fraser (“HoF”)

British department store groupHoF has been bought by Sports Direct for GBP 90mn, in a deal that was announced just hours after HoF entered administration on 10 August 2018 (BBC). The owner of Sports Direct, Mike Ashley, has pledged to keep 80 per cent of the HoF stores open. However, attempts to keep HoF stores open have been obstructed by landlords not keen on negotiating new leases for a lower rent (The Independent). On 5 September 2018, the Guardian reported that one of HoF’s key suppliers, the Edinburgh Woollen Mill group, has started to withdraw its stock from HoF stores following a failure to agree future trading terms with the department store chain.

In other news, Reuters reported on 3 September 2018that South African retailer The Foschini Group (“TFG”) had announced that its London business will be impacted due to bad debt write-offs caused by HoF’s demise. TFG London contributed 18.7 per cent to THG group turnover in the year to March 2018 and is the group’s second largest operation after TFG Africa.

Steinhoff International Holdings NV (“Steinhoff”)

Steinhoff has suspended its former CFO, Ben La Grange, and another former executive, Stephan Grobler, as part of an ongoing investigation into the retailer’s finances following an accounting scandal (Business Live). La Grange, along with former CEO Markus Jooste, has been called to face a parliamentary committee investigating the demise of SteinhoffBloomberg reported on 28 August 2018 that Jooste’s appearance before the committee is predicated on the fact that he will only comment on the flaws of the South African financial industry and not on particular Steinhoff affairs. Jooste resigned from Steinhoff following the disclosure of the accounting irregularities at the retailer in December 2017. However, Reuters reported on 5 September 2018 that Jooste has told the parliamentary committee that he was not aware of any accounting irregularities at the time of his resignation.

Steinhoff has shown signs of progress since it won creditor support for its debt restructuring plan in July 2018, as it posts a 2 per cent rise in its nine-month sales to USD 15bn(Moneyweb). The improved trading performance led to a rise in the valuation of Steinhoff to around USD 80mn, but far from its stock valuation from nine months ago of USD 1bn.

Steinhoff has announced in a corporate filing, as reported by Moneyweb on 6 September 2018, that it will host a lenders' meeting on 20 September 2018 at the Millennium Gloucester Hotel, 4-18 Harrington Gardens, Kensington, London SW7 4LH, and will comprise two sessions, from 9 am until 12 pm (session for public and private side lenders) and 1 pm until 4 pm (session for private side lenders only).

Folli Follie

Folli Follie Group ("FFG") is seeking court protection from creditors in order to manage the restructuring of its loans issued outside of Greece. FFG, the luxury jewellery retailer was founded in 1982 in Greece and has operations in Europe and China with an estimated market cap (as at May 2018) of EUR 719mn. FFG's share price took a nose-dive in May this year after a New York based equity fund (with significant positions in the company) issued a report saying the company had overstated the number of retail outlets it operates worldwide and raised concerns over its reported finances. FFG's shares were subsequently removed from the Athens' stock exchange on 25 May and the group has been subject to a regulatory investigation which thus far resulted in a EUR 4mn fine for market manipulation.

Bloomberg reports that FFG'scumulative earnings for past seven years were EUR 1.6bnand its revenue for 2017 was EUR 1.4bn. The group has EUR 613mn of debt including EUR250mn of bonds due July 2019and 150mn Swiss francs (USD 150mn) of notes dueNovember 2021. FFG's move to seek court protection from its foreign creditors followed the termination of one of its German law governed credit arrangements for approx. EUR 20mn.

It is understood that Greek banks have a c. EUR 47mnexposure to FFG and that a court supervised restructuring would include them with a group of creditors with aggregate demands in excess of EUR 500mn. Reportedly Greek banks are looking to move away from this exposure by seeking a court order allowing the acquisition or liquidation of their collateral, particularly FFG's 35 per cent share in Attica Department Stores.




The Council of the EU (the "Council") published a comprehensive package of measures to counter non-performing loans ("NPLs") on 14 March 2018 including:

(a)   a proposed regulation to amend the Capital Requirements Regulation so that banks havesufficient loans loss coverage when newly originated loans become non-performing;

(b)   a proposed directive which sets out general rules for participants in the secondary market for NPLs and introduces harmonised procedures for the enforcement of collateral used to secure business loans; and

(c)   a blueprint to help member states create Asset Management Companies (i.e., 'bad banks') to deal with NPLs from banks in resolution.

The proposed EU Directive on Credit Servicers, Credit Purchasers and the Recovery of Collateral(the "Proposed Directive") has caused concern to many in the secondary market with the Loan Market Association (the "LMA") providing a response on 8 June 2018. Key concerns include (i) the wide applicability of the regime capturing both performing and non-performing loans and NPLs originally made by an EU bank in both the primary and secondary market; (ii) the vague drafting of the new regime (with the territorial impact potentially being huge and not enough clarity as to the meaning of "transfer"); and (iii) the new requirements for non-bank lenders(which diverge greatly from current market standard) potentially acting as "a disincentive for existing lenders to make loan transfers to non-banks" which "may reduce recoveries by existing lenders from loan transfer".

The consultation period ended on 8 June 2018. The EC aims to have the Proposed Directive adopted by mid-2019 with the expectation that it will apply to each Member State from 1 January 2021.



We reviewed the LMA's comments on the Proposal for a Regulation of the European Parliament and of the Council on the law applicable to the third-party effects of assignments of claims(Com (2018) 96 final) of 12 March 2018 (the "Proposal"). The Proposal and the 3 May 2018 draft report recommend that the 'habitual residence' of the assignor should be the governing law for an assignment of claims, as opposed to the governing law of the underlying facility agreement (as is currently the case).

In a letter dated 9 June 2018, Economic Secretary to the Treasury John Glen MP confirmed that the UK will not be opting in to the Proposal. He advised that the rules applied by the Proposal will lead to "confusion and uncertainty and may be legally contradictory". Furthermore, the "provisions would have significant unintended consequences for financial services market practices in the UK."

Although the UK is not opting in to the Proposal, it may still have an impact on loans that are governed by the law of other EU jurisdictions.



The Irish Credit Reporting Act 2013 (the "Act") establishes a requirement for credit providers to register information concerning credit granted above EUR 500 that is either (i) granted to an Irish borrower or (ii) governed by Irish law. Lenders that fall under the Act must report individual credit exposure on the Register by 30 September 2018 and detail any loans outstanding as at 31 March 2018 (even if such positions are sold prior to 30 September 2018). The sentiment of some in Ireland is that the effects of the Act will be more widely felt than may be intended. We have been working with Peter O'Brien at Matheson on the impact of the Act and will provide more detailed analysis in due course.


Louisa Watt

P: +44.20.7851.6141

F: +44.20.7851.6100