Minority investors dismayed as fresh events spark controversy at K-Electric

LONDON: Several minority investors in Karachi Electric (K-Electric) are disgruntled and “extremely furious” with the way the process has been handled by Infrastructure and Growth Capital Fund (IGCF) and its newly-revealed controlling directors, according to people close to the matter and dealing directly with it.

The development comes after IGCF, a fund founded and previously operated by The Abraaj Group, was transferred to the ownership of AsiaPak Investments, owned by Pakistani businessman Shaheryar Chishty.

People directly linked with the matter have told Geo News that all sides in this dispute have instructed lawyers in the Cayman Islands to challenge the latest moves by Chishty after fresh events reignited a heated atmosphere at K-Electric.

As reported here first around seven months ago, Chishty acquired control of the general partner company of IGCF which managed it, even though the fund life, which normally lasts for ten years, had expired in 2019 despite two extensions.

A person directly involved in K-Electric matters said on condition of anonymity that there are several outstanding matters which yet have to be tested before the Cayman judicial system.

“Funds are owned by investors who appoint a general partner to manage their money, which is the role that was played by Abraaj until its liquidation in 2018.

"What is not known is whether the general partner management rights continue to survive after the end of the fund life, a matter yet to be tested in the Cayman judicial system. What is also not known is what percentage of IGCF investors in the fund itself has been acquired by Chishty and whether that percentage is sufficient for him to exercise absolute control over IGCF."

Shaheryar Chishty has stressed that he is following laws and doing everything in a proper manner.

“We have filed with the Cayman Court and the Court has admitted our petition to wind up KESP which is the holding company of KE,” Chishty said.

“KESP will be dissolved and after paying off liabilities each shareholder will get their due shares in KE directly instead of going through a holding company.”

It’s understood that there remain many legal challenges ongoing in Cayman from disgruntled investors in IGCF, despite the apparent show of strength being shown by Chishty in his latest statement and a statement made by spokesmen of the general partner of IGCF to a Western news agency.

People familiar with the ongoing situation inside K-Electric have revealed that IGCF had 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 publicly listed company in Pakistan.

KESP was a 50/50 joint venture formed in 2009 between the Al Jomaih group of Saudi Arabia and the Denham Group of Kuwait on one side with the Abraaj Group which was entrusted with the management of K-Electric.

Over time, the balance shifted to 53.8% in favour of Abraaj, which in itself represented many different investors from around the world that owned stakes in IGCF. Abraaj Group, Arif Naqvi’s private equity firm, then engineered K-Electric’s positive growth following privatisation.

People familiar with the matter have said they will raise before the Cayman court the issue that Chishty has been directing Mark Skelton, an employee of restructuring firm, Alvarez & Marsal, and chairman of the Board of KE, to act in interests which appear beneficial solely to the newly owned IGCF’s interests even though Alvarez & Marsal are meant to act in the interests of the IGCF fund investors.

Chishty has held that he’s acting in the best interests of K-Electric.

Meanwhile, the 30% minority shareholder of IGCF SPV 21 is a trustee on behalf of Mashreq Bank of the UAE whose representative was recently fired from the board of KESP and as such, there does not seem to even be consensus behind Chishty's actions within IGCF SPV 21 itself let alone KESP.

“As such, even if AsiaPak owns 100% of IGCF itself which is certainly not the case, it will only own 25% of the underlying stake in KE, with Mashreq Bank owning 11% and Al Jomaih and Denham owning 30.5% and still remaining the largest shareholders in K Electric," the source said.

"This is leading to further confusion as to how Chishti now claims control over K Electric, he added.

For context, in 2009, K-Electric had been losing billions of rupees for every year of the previous two decades and was an impediment to the infrastructural development of Karachi through high line losses and corruption.

The company underwent a tremendous transformation over the next eight years under Arif Naqvi’s stewardship where it became the subject of numerous Western university case studies at places like Harvard, Stanford, and others — where it was showcased as a global example of how private equity can have a serious and positive impact on society.

K-Electric became a cornerstone for how impact investing could work in Pakistan and other countries.

When a deal was agreed by Naqvi in 2016 for a sale to a Chinese state enterprise called Shanghai Electric Power, impediments began to emerge. Six years on, the deal has been stalled and delayed, not being helped by the restructuring and eventual collapse and liquidation of the Abraaj Group.

In October 2022, Sindh High Court (SHC) issued a stay order preventing any change in the present board of directors because of a lawsuit filed by minority shareholders in KESP. There are three slots vacant on the board of directors.

Separately, following their decision to have filed for a Winding Up of KESP in the Grand Court of Cayman Islands this week, IGCF and Chishty said they wanted a more direct stake in the company to take decisions, accusing Al Jomaih and NIG of frustrating the smooth functioning of KESP.

However, Al Jomaih and NIG deny this and have said previously that K-Electric is not just any other company as it is the largest private utility provider in the country whose stakeholders include the citizens who rely on K Electric’s smooth functioning to enable daily life to function.

This dispute could affect the underlying company if it continues. For now, it appears to be a back-door attempt to control the boardroom of one of Pakistan’s most important companies.

Throughout this process, despite being the architect of K-Electric’s transformation, the drama of the Abraaj Group and its founder Arif Naqvi continues.

The Pakistani national former tycoon remains under house arrest in London since August 2018.

He faces extradition for 291 years in a US prison, charged by the Department of Justice for allegations of corruption, which are strongly disputed by Arif Naqvi through his lawyers.