Another twist in battle for K-Electric ownership

LONDON: A legal dispute has broken out into the open between Ernst & Young (EY) and Infrastructure Growth and Capital Fund (IGCF) SPV 21, a Cayman Island entity under the control of Shaheryar Arshad Chishty, concerning the recent removal of a director from the board of KES Power Ltd, the parent entity of K-Electric (KE).

According to the court filing available with Geo.tv, KP Corporate Director Ltd (KPC), a company nominated by the joint receivers from EY — a global leader in assurance, consulting, strategy and transactions, and tax services — was overseeing the 30% Abraaj Holdings' stake in SPV 21 and was appointed to the KES Power Ltd (KESP) board as a nominated Director in October 2020.

However, a dispute has now emerged when the majority ownership of IGCF SPV 21 recently changed hands through a transaction involving Chishty and KPC.

Court filings show that in the Cayman Islands, UAE's prominent Mashreq Bank, through their representative in EY, has also joined the legal battle as the bank is approximately 30% owner of IGCF SPV21, which has been at the centre of focus during the last few months upon the emergence of Chishty through his BVI company Sage Venture Group Limited (Sage).

By way of background, KESP presently holds 66.4% of the shares in K-Electric, another 24.4% is held by the Government of Pakistan, with the remaining stake set afloat on the Karachi Stock Exchange.

KESP, being the parent entity of KE, has three shareholders, namely Aljomaih Group of Saudi Arabia, National Industries Group (NIG) from Kuwait, and IGCF SPV 21, a Cayman Island company setup by Abraaj Group (now under liquidation).

According to the court filing, Abraaj Holdings obtained working capital financing for its business activities from many banks, which included Mashreq Bank as far back as 2014, by pledging security over assets it held, including a mortgage in favour of Mashreq over Abraaj Holdings' shareholding in Abraaj SPV 108 Limited and Abraaj SPV 127 Limited.

Records reviewed by this reporter indicate that these two companies were directly owned by Abraaj Holdings itself, not the Infrastructure and Growth Capital Fund LP (IGCF) which it also managed.

Furthermore, these two entities (SPV 108 and SPV 127) collectively own approximately 30% equity stake in IGCF SPV 21.

When Abraaj entered liquidation, the control over these two entities ended up with Mashreq Bank who appointed Keiran Hutchison of EY Cayman Ltd and Hani Bishara of Ernst & Young Middle East as joint receivers over the security.

The situation escalated in June 2023 when the KESP board convened a meeting to appoint legal counsel to defend themselves against a claim brought primarily by Sage.

Tensions arose when Casey McDonald, the sole director of IGCF SPV 21 Limited allegedly sought to influence the potential voting of the KPC Director to oppose the appointment of legal counsel for KESP to prevent it from defending itself.

As per the Court document, McDonald, acting on behalf of IGCF SPV 21, removed KPC director from the board a day before the June 2023 board meeting which was to be held to vote on the matter of appointing a legal counsel, sparking a legal battle over the validity of the removal.

In the court filings, Mashreq Bank through EY, has contested by arguing that its representative was removed from the board unlawfully, without proper justification, and contrary to the terms of previously executed agreements.

They claim that the removal by McDonald on behalf of Sage was an attempt to thwart the appointment of legal counsel by KESP to defend itself against the claim brought by none other than Sage itself.

Yet, the proceedings deviated dramatically, resulting in the removal of the KPC Director from its position a day prior to the KESP board meeting.

Through the court filings, Mashreq Bank and EY, via their ownership of IGCF SPV 21 are seeking legal redress to challenge the removal of KPC Director, asserting that violation of the terms of the existing agreements and their rights as part owners of IGCF SPV 21.

They allege that IGCF SPV 21's actions were driven by an ulterior motive and a desire to serve the ultimate interests of Sage, rather than acting in the best interests of KESP.

This is just one of the many series of litigation which are now unfolding to the public at large.

While the Saudi and Kuwaiti groups have been long-term investors in KE — since 2005 — still commanding the largest block of 30% indirect interest in KE, Mashreq Bank coming in behind them with a 10.5% KE indirect stake, Chishty says he is the majority owner.

However, records show his beneficial indirect stake in KE is only 5.1%.

Initially, it was the original shareholders i.e., the Saudi and Kuwaiti groups against Chishty and now Mashreq Bank and EY have also initiated legal proceedings at the Cayman Grand Court against Sage.

The News wrote to Chishty but awaited his response at the time of the filing of this report; however, it is understood his lawyers will defend the claim at the Cayman Grand Court.