* Houlihan Lokey’s role expanded by Abraaj
* Abraaj set to meet with creditors on Monday
* Abraaj says meeting to seek “consensual resolution”
* Alix Partners set to step in to oversee healthcare fund-sources
By Tom Arnold, Saeed Azhar, Katie Paul and Davide Barbuscia
DUBAI, June 3 (Reuters) - Abraaj has expanded U.S. investment bank Houlihan Lokey’s role to include advice on the sale of its investment management unit as the private equity firm prepares to meet creditors over its $1 billion debt, sources familiar with the matter said.
Dubai-based Abraaj has hired the New York-based bank to help it try to stem the fallout from allegations it had misused investor money in a $1 billion healthcare fund, but the role has since been widened to providing general advice, including the sale of Abraaj Investment Management Ltd, two sources said. The Middle East and Africa’s biggest private equity fund, which denies any wrongdoing, has been seeking a buyer for the unit as it tries to alleviate pressure from investors and creditors.
Parent company Abraaj Holdings has been in talks with two to three potential buyers of Abraaj Investment, Reuters reported last month, including Los Angeles-based Colony Northstar. Colony declined to comment on reports it had walked away from the talks.
Creditors are meeting Abraaj executives on Monday to discuss its ability to pay its debt, another two sources said.
Abraaj confirmed the meeting and said it aimed to “maintain a constructive dialogue with the group’s creditors and make further orderly progress, in the interests of all stakeholders, towards a consensual resolution of all outstanding concerns.”
“Abraaj Holdings is being advised on these matters by Houlihan Lokey,” the firm said in a statement.
Houlihan Lokey did not immediately respond to a request for comment.
Any sale of the investment management unit will likely need approval from bilateral lenders because they might have to agree on potentially taking a haircut on their loans if the valuation for the deal is below the debt, one source said.
As the sale would likely involve a debt restructuring, Houlihan Lokey would be well placed to advise due to its expertise in restructuring, the source added.
Bankers estimate Abraaj Investment is worth about $500 million, while Abraaj’s debt is at least double that amount.
Abraaj’s cash flow has tightened after it suspended a new $6 billion fund and returned $3 billion of committed funds to investors in light of the dispute with four investors including the Bill & Melinda Gates Foundation and the World Bank Group’s International Finance Corp.
It has also been trying to complete the sale of its stake in Pakistani utility K-Electric.
Some creditors, such as Mashreq, are considering taking a more aggressive stance including considering the potential seizure of assets, one of the sources said.
Mashreq was not immediately available for comment.
Last week, The Wall Street Journal reported that Kuwait’s Public Institution for Social Security filed a case in a Cayman Islands court against Abraaj, claiming it is unable to repay a $100 million loan and $7 million interest by the agreed date.
Abraaj founder Arif Naqvi has handed the running of the fund to two co-chief executives and halted investments during a review of the business structure. Abraaj has previously indicated it may step down as manager of the healthcare fund.
Turnaround specialists Alix Partners is likely to be brought in as interim manager of the healthcare fund until a permanent solution is found, a third set of sources said.
One source said that private equity firm TPG and other names are being considered to manage it on a permanent basis.
Abraaj declined to comment. Alix Partners did not immediately respond to requests for comment, while TPG has declined to comment.
Another option is for the healthcare fund’s existing manager at Abraaj, Khawar Mann, to spin it off, two sources said.
One issue that will face a new fund manager is that Abraaj has $100 million in equity in the fund, so it will have to be bought out, one of the sources added. (Editing by Ghaida Ghantous/David Evans)