Eshraq Investments is seeking to accelerate termination of its management agreement with Shuaa GMC after concerns about the valuation of the Goldilocks Fund.

The Abu Dhabi-listed investor’s board expressed concerns about changes to valuation methods leading to 497 million dirhams  ($135 million) decrease in value of underlying assets in the fourth quarter of 2024 and has issued a legal letter seeking to accelerate termination of the agreement.  

The company reported widening losses in audited financial results for the full year 2024 of AED 679.4 million, growing from AED 545.1 million in 2023, which it said were due to asset valuation write-downs in the Goldilocks Fund, acquired in a share swap deal in 2022.

The fund is managed by Shuaa GMC, the ADGM-regulated arm of Dubai-listed Shuaa Capital. The two entities operate separately with independent boards.

In an interview with Zawya last year, Eshraq CEO Mohamed Al Sayed Al Hashimi implied the investor would seek to take the Goldilocks Fund under its own management, saying it did not make sense for a smaller investor to outsource the management of a large proportion of its balance sheet.

Notes to audited financial statements for FY 2024 said the board was concerned the fund manager had failed to maintain consistency in methodology, resulting in “significant unexplainable discrepancies” in reported net asset value.

Eshraq has also commissioned legal and financial advisors to carry out a forensic review of management and valuation practices of the Goldilocks Fund, to be announced in due course.

Its legal counsel has issued a letter to the fund manager to accelerate redemption of underlying investments and terminate the investment management agreement between Eshraq and the fund manager, the investor said.

Eshraq’s board is chaired by Fahad Al Qassim, who is also chair of Dubai-listed Islamic insurer Salama, of which the Goldilocks Fund holds 14%.

The largest shareholder of Eshraq is Abu Dhabi Financial Group, which was combined with Dubai-listed Shuaa Capital in a reverse merger in 2019, and now holds 18.38% of Eshraq. A new significant investor, Inventive Investment Holding Limited, has increased its shareholding in Eshraq in recent weeks to 10.3%.

Shuaa Capital’s stake in Eshraq means it is impacted by the Abu Dhabi investor’s losses.

The fate of the two entities is also connected by the acquisition of the Goldilocks Fund by Eshraq from Shuaa, which took place before a significant shakeup, with the Shuaa GMC retaining management of the fund.

Shuaa Capital has also recently undergone a year-long debt restructuring culminating in the issuance of mandatory convertible bonds (MCBs) with Eshraq Investments onboarded as one of three new investors.

Prior to the shakeup and restructuring, Shuaa’s largest individual shareholder during the Goldilocks acquisition was Jassim AlSeddiqi, who resigned as managing director and announced that he would sell his stake the year after the transaction.

Seddiqi also stepped down from his role as chairman of Eshraq Investments in October 2023.

Tensions appeared between Shuaa and Eshraq prior to the completion of the MCB issuance earlier this month, with Eshraq denying Shuaa statements that it had agreed to subscribe to the bonds.

However, the investor later confirmed subscription following a Shuaa statement that it was in receipt of a binding and irrevocable commitment.

(Reporting by Imogen Lillywhite; editing by Brinda Darasha)

imogen.lillywhite@lseg.com