LONDON: Several minority investors in Karachi Electric (K-Electric) are upset and “extremely furious” about how the process has been handled by Infrastructure and Growth Capital Fund (IGCF) and its newly-revealed controlling directors, according to people who are close to the situation and have dealt directly with it.
The change happened after IGCF, a fund started and run by The Abraaj Group, was sold to AsiaPak Investments, which is owned by a Pakistani businessman named Shaheryar Chishty.
People with direct knowledge of the situation told Geo News that all sides in this dispute have hired lawyers in the Cayman Islands to fight Chishty’s latest moves after new events at K-Electric made things even more tense.
As we were the first to report here about seven months ago, Chishty took over IGCF’s management company, the general partner company, even though the fund’s normal ten-year life had ended in 2019 after two extensions.
Under the condition of anonymity, a person who is directly involved in K-Electric matters said that there are still a few things that need to be tried in the Cayman court system.
“Investors own funds, and they hire a general partner to handle their money. This is what Abraaj did until it went out of business in 2018.
“What isn’t known is if the general partner management rights still exist after the end of the fund’s life. This is something that the Cayman legal system hasn’t tested yet. Also unknown is what percentage of IGCF investors Chishty has bought into the fund itself and if that percentage is enough for him to have full control over IGCF.”
Shaheryar Chishty has said that he obeys the law and does everything in the right way.
“We’ve asked the Cayman Court to close down KESP, which is the holding company for KE, and the Court has agreed,” Chishty said.
“KESP will be dissolved, and instead of going through a holding company to get their shares in KE, each shareholder will get their shares directly after liabilities are paid.”
Even though Chishty’s latest statement and a statement from IGCF’s general partner to a Western news agency seem to show that he is strong, it is thought that there are still many lawsuits being brought against IGCF in Cayman by unhappy investors.
People who know what’s going on inside K-Electric have said that IGCF only invested 70% of the equity of IGCF SPV 21, which is known to own 53.8% of another SPV (KESP), and KESP owns 66.4% of K-Electric, a public company in Pakistan.
In 2009, the Al Jomaih Group of Saudi Arabia and the Denham Group of Kuwait formed KESP as a 50/50 joint venture with the Abraaj Group, which was in charge of running K-Electric.
Over time, the balance shifted to 53.8% in favour of Abraaj, which was made up of many different investors from all over the world who owned shares in IGCF. After privatisation, Arif Naqvi’s private equity firm, Abraaj Group, helped K-Electric grow in a good way.
People who know about the situation say they will tell the Cayman court that Chishty has been telling Mark Skelton, an employee of restructuring firm Alvarez & Marsal and chairman of the Board of KE, to act in a way that seems to benefit only the newly owned IGCF, even though Alvarez & Marsal is supposed to look out for the investors in the IGCF fund.
Chishty has always said that he is doing what is best for K-Electric.
The 30% minority shareholder of IGCF SPV 21 is a trustee for Mashreq Bank of the UAE, whose representative was recently fired from the board of KESP. Because of this, there doesn’t even seem to be agreement within IGCF SPV 21 about Chishty’s actions, let alone within KESP.
“As a result, even if AsiaPak owned 100% of IGCF itself, which is not the case, it would only own 25% of the underlying stake in KE, with Mashreq Bank owning 11% and Al Jomaih and Denham owning 30.5% and still being the largest shareholders in K Electric “said the source.
“He also said that this makes it even harder to understand how Chishti can now claim to be in charge of K Electric.
For example, in 2009, K-Electric had lost billions of rupees every year for the past 20 years and was slowing down the development of Karachi’s infrastructure because of high queue losses and corruption.
Over the next eight years, the company changed a lot under Arif Naqvi’s leadership. It became the focus of many case studies at Harvard, Stanford, and other universities in the West, where it was used as a global example of how private equity can have a serious and positive effect on society.
K-Electric became a key example of how impact investing could work in Pakistan and other places.
When Naqvi made a deal in 2016 to sell his company to Shanghai Electric Power, a state-owned company in China, problems began to show up. Six years later, the deal has stalled and been put off, which wasn’t helped by the fact that the Abraaj Group restructured and then went bankrupt.
A lawsuit filed by KESP minority shareholders in October 2022 led Sindh High Court (SHC) to stop any changes to the current board of directors. On the board of directors, there are three empty spots.
Separately, after filing for a “Winding Up” of KESP this week in the Grand Court of the Cayman Islands, IGCF and Chishty said they wanted a more direct stake in the company so they could make decisions. They said Al Jomaih and NIG were making it hard for KESP to work well.
Al Jomaih and NIG, on the other hand, deny this and have said in the past that K-Electric is not just any company; it is the largest private utility provider in the country, and its stakeholders include the people who depend on K Electric to keep their daily lives running.
If this fight goes on, it could hurt the company in question. At the moment, it looks like an attempt to take over one of Pakistan’s most important companies through a back door.
Even though Arif Naqvi was the mastermind behind K-change, Electric’s the Abraaj Group and its founder are still in the middle of a drama.
Since August 2018, the former tycoon from Pakistan has been under house arrest in London.
He could be sent to a US prison for 291 years if he is extradited. The Department of Justice has charged him with corruption, but Arif Naqvi and his lawyers strongly disagree with this.