Dubai Islamic Bank (DIB) has launched a bid to liquidate a trade finance fund managed by Rasmala Investment Bank, saying it has lost “trust and confidence” in the management of the troubled investment vehicle.
DIB owns almost two-thirds of the shares in the Rasmala Trade Finance Fund on behalf of more than 100 of the bank’s clients who collectively invested some US$315mn in its trade finance assets in 2017 and 2018, according to a winding up petition filed in the Cayman Islands on September 24.
The fund, which launched in 2013, suspended payouts in early 2020, blaming the impact of the Covid-19 pandemic on its borrowers. Investors were able to redeem part of the value of their shares from May 2021, the petition says, with the remainder to be made as assets were liquidated.
More than half of its investments are in the UAE and the bulk are in energy, agricultural commodities, metals and mining, according to a November 2020 Rasmala document on the DIB website, which valued the fund’s assets at US$318mn.
DIB has been in a long-running spat with Dubai-headquartered Rasmala over what the petition describes as a lack of information about the performance of the trade finance fund, which DIB says is in a “soft wind down” situation, and the payment of management fees to Rasmala Investment Bank.
The UAE bank argues that the fund should be wound up because it has not provided audited accounts for 2022 and 2023, has “deprived” shareholders of basic information about the fund’s performance and has not calculated the fund’s net asset value since early 2020. In November 2021, Rasmala said the fund had an “indicative” value of US$263mn, according to DIB.
The bank says there are “serious concerns as to the solvency” of the fund, which suffered net losses of US$34.2mn in 2021 and US$66.4mn in 2020, according to audited accounts cited in the petition.
DIB also objects to the payment of just over US$4mn in management fees to Rasmala Investment Bank in 2020 and 2021, saying it is unclear how the fees were calculated when the value of the fund is not known. The bank claims the fund switched strategies to real estate investing without seeking permission from investors.
“No meaningful explanation has been provided as to why the fund has been left significantly exposed and embroiled in expensive litigation all while the investment manager is paid significant investment fees,” the filing says.
The petition was filed by Allfunds Bank, which is the custodian of DIB’s shares in the fund. It is unclear if the petition has yet been heard in the Cayman Islands, where the fund is registered.
Asked for comment, Rasmala Investment Bank tells GTR: “We are aware of Dubai Islamic Bank’s petition, and regret that they elected to take this action despite our constructive cooperation and the extensive information that we have presented to them. We believe the petition is without merit and plan to defend against it vigorously.”
When DIB asked Rasmala to place the fund in the hands of voluntary liquidators from FTI Consulting earlier this year, the investment manager argued that installing liquidators would only disrupt and delay the recovery process, the petition claims.
DIB did not respond to a request for comment.
Litigation challenges
DIB claims the fund ran into problems in late 2019, before the onset of the pandemic.
Since then, the petition says the fund has launched “ongoing litigation in multiple jurisdictions” to recover money lost to borrowers that defaulted. It has also filed claims under credit insurance policies.
In late 2020, the fund told DIB that recovery of impaired loans was being frustrated by the closure of courts in many countries due to the pandemic, according to the petition.
It claims Rasmala said in a webinar for investors in May 2021 that 35% of the estimated value of the fund was non-performing and “legal proceedings and/or police complaints” had been filed against 12 entities and five individuals, “for a total of US$100mn”. It expected that recovery of non-performing loans would take between one and three years.
In 2023, DIB claims the fund said in an update to shareholders that it had achieved legal victories in the UAE courts and was set to make recoveries from an auction and seizure of assets, in addition to recoveries from insurance claims expected in 2024 “and beyond”.
But DIB claims it is not aware of any successful recoveries so far from Rasmala’s litigation and insurance claims.
Among Rasmala’s lawsuits is a 2021 claim against global commodities giant Trafigura, in which the fund claimed that Trafigura was complicit in fraud by coal trader Farlin Commodities, which owed the fund almost US$20mn. The case is ongoing, but in October 2022 a judge struck out allegations in Rasmala’s claim that Trafigura was complicit in a Ponzi scheme by Farlin.
Rasmala said in a March 2024 letter to DIB that the fund “is currently engaging in arbitration proceedings” against an insurer over a US$17mn claim related to its exposure to Farlin.
Rasmala is also being sued by Saudi investment firm Alawwal Capital for allegedly breaching statutory duties while negotiating the company’s investment in the fund. Rasmala has denied the allegations and the case is ongoing.
This article was amended on October 25 to remove a statement from the first paragraph that redemptions from the Rasmala Trade Finance Fund have been largely frozen since 2020. The third paragraph has been updated to include details of a redemption offer made in May 2021.
