Abraaj Seeks Buyer for Private-Equity Business

Abraaj Group executives are exploring a sale of the firm’s private-equity business, people familiar with the matter said, as the Dubai-based company faces mounting pressure from some investors who are investigating whether their funds were misused.

Company representatives have approached Middle Eastern sovereign-wealth funds including Abu Dhabi’s Mubadala and Abu Dhabi Financial Group about a possible sale, the people said.

Talks are at an early stage and are linked to both an internal restructuring Abraaj is carrying out and the results of an audit commissioned by disgruntled investors in the firm’s health care fund, the people said.

“A strategic sale could help bring the company to safer shores,” one of the people familiar with the situation said.

A spokeswoman for Abraaj declined to comment on whether discussions about a sale are taking place. She also didn’t comment on whether a sale would take place.

Audit firm Deloitte is working with law firms Baker McKenzie LLP and Clifford Chance to review Abraaj’s operations to pave the way for a separation of the fund management business, Abraaj Investment Management Ltd., from the holding company, Abraaj Holdings, the people familiar with the matter said.

That review could be concluded as soon as this week, the people said. Once the new organization is in place, Abraaj officials could start a more formal sale process, the people said, adding that Abraaj is considering a variety of options, including a sale of the group’s private equity business.

Another option is that founder Arif Naqvi would sell his share in the holding company which owns the fund management business, the people familiar with the matter said. Mr. Naqvi is the largest single shareholder in Abraaj Holdings.

But any potential sale process is largely dependent on the outcome of an audit by U.S. advisory firm Ankura Consulting which was commissioned by investors in Abraaj’s $1 billion health care fund, the people familiar with the matter said.

Investors in the health-care fund—including the Bill and Melinda Gates Foundation and the World Bank’s International Finance Corp. unit—have seen the preliminary results of the audit, according to people familiar with the matter. The audit found that money was moved out of the health-care fund, three people familiar with the matter said.

“All funds drawn down from investors in the Abraaj Growth Markets Health Fund were either fully utilized or returned,” the Abraaj spokeswoman said.

Two of the people familiar with the investigation said some investors in the fund consider the movement of money to constitute “misuse” and to be in breach of a legal contract signed by Abraaj and its backers.

If the contract is breached it gives investors the power to remove Abraaj as the manager of the fund, legal documents show.

At a meeting held in London earlier this month to discuss the audit findings, some investors in the fund discussed options including removing Abraaj as the manager of the health-care fund, the three people familiar with the investigation said. Another option being considered is shutting down the fund, selling its assets and returning any unspent capital to investors, two of the people said.

Another option is separating the health-care fund from Abraaj to be managed by a handful of executives from the firm under a new name, the two people said. No formal decision has been made as to whether Abraaj will be removed as the manager and no timeline has been put in place as to when a decision will be made, the two people added.

Abraaj said on Feb. 23 that Mr. Naqvi was handing over the reins at the fund-management unit to two current executives, Omar Lodhi and Selcuk Yorgancioglu, and that the firm was temporarily suspending all investment activities at its main private-equity business.

Abraaj also decided to release investors from their commitments to its latest global buyout fund, which was targeting $6 billion. The firm said it may restart raising a new fund after the internal review is completed.

Some senior executives have told the firm that they plan to leave, including Mustafa Abdel-Wadood, the firm’s global head of private equity, and managing partner Sev Vettivetpillai, the people familiar said.

Write to Nicolas Parasie at nicolas.parasie@wsj.com, William Louch at william.louch@wsj.com and Simon Clark at simon.clark@wsj.com

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