The latest claim by Kuwait’s National Industries Group adds a new twist to its more than two-and-a-half year legal challenge to Carlyle, and could complicate the American company’s relationships with other wealthy Mideast investors.
NIG’s lawsuit focuses on a Carlyle investment fund that was one of the earliest casualties of the financial crisis when it collapsed in 2008. The fund has been the subject of multiple lawsuits against Washington-based Carlyle.
In a motion filed this month with a Delaware court hearing the case, NIG argues that the dispute should be heard in Kuwait because Carlyle lacked the legal basis to pitch the deal there in the first place.
Selling foreign securities or shares in investment funds in Kuwait requires a license from local authorities, according to a declaration by lawyer Ahmed Zakaria Abdel-Magied filed by NIG attorneys. He added that marketing such investments without a license makes the underlying deal invalid.
NIG said Sunday it believes it is entitled to the return of its $25 million investment under Kuwaiti law.
"Carlyle was more than happy to conduct its sales presentations in Kuwait and close its deals in Kuwait," NIG’s general manager, Ahmed Hassan, said in a statement. "But now that the moment has come to deal with the ugly aftermath … Carlyle would prefer to try its luck in Delaware."
Carlyle has tried hard to woo clients in the oil-rich Gulf Arab states. It opened an office in the Mideast financial hub of Dubai in 2006, and its shareholders include Mubadala Development Co., an investment company owned by the United Arab Emirates capital, Abu Dhabi.
The Carlyle fund involved in the Kuwait case, known as Carlyle Capital Corp. Ltd., went bust in March 2008. It used high levels of debt to invest in securities backed by bundles of home mortgages that had been given a seemingly safe AAA rating by credit rating agencies.
Carlyle declined to comment on the case Sunday. It has previously said it will fight NIG’s suit.
"We believe these claims are without merit and intend to vigorously contest all such allegations and are currently unable to anticipate what impact they may have on us," Carlyle said in its most recent quarterly report, filed on Aug. 14.
Private equity firms such as Carlyle raise money from big investors and then use that money to invest in companies or other investments. The industry is under close scrutiny because of the U.S. presidential election and presumed Republican nominee Mitt Romney’s former role as an executive at another private equity firm, Bain Capital.
Kuwait’s NIG started out in the 1960s as a building materials company and later began investing across a range of industries.
It is partly backed by the Kharafi clan, one of Kuwait’s most prominent merchant families. A branch of the Kuwaiti government, the Public Institution for Social Security, is a minority investor.
Like many Gulf companies, it has struggled to meet its debt obligations in the wake of the financial crisis. Faced with a looming $475 million loan repayment due earlier this month, it approached its lenders about reworking the terms on the debt so it could repay over a longer period.
Just days before the Aug. 16 repayment deadline came due, NIG announced it was calling off the effort to adjust the repayment terms because it had managed to line up new financing.
