Gems unit faces $200 million lawsuit from US developer



A New York property developer is suing a unit of Dubai’s Gems Education for allegedly breaching a tenancy contract in a US$1 billion deal to construct and lease its first school in the city.

93-94 Second Development has filed a US$200 million lawsuit plus fees and punitive damages against Gems Menasa Topco, a Cayman Islands-registered subsidiary of Gems, one of the world’s largest privately-owned school operators.

The Topco subsidiary Gems NY had agreed to rent for 40 years a 213,000 square foot site between Manhattan’s 92nd and 93rd Streets, which had originally been earmarked by 93-94 Second Development for a skyscraper, to be developed as a private school. The cost of construction was estimated at around $117m.

Termination of the contract resulted in a loss of $940.84m in rent over the period plus millions of dollars in fees and loss of business for the developer, 93-94 Second Development claimed in a partly redacted lawsuit filing dated last Friday with the New York State Supreme Court in lower Manhattan.

The developer, an affiliate of the New York-based real estate company Merchants Hospitality, alleges that Gems NY terminated the contract three months after signing it in March on a pretext, putting it in breach.

A Gems spokesman said that previous suits filed against Gems regarding the deal had failed to succeed. “The facts here are very simple: two judges, in just one week, have already rejected arguments based on these baseless allegations, period,” said Robert Ward, Partner at Schulte Roth & Zabel, the law firm representing Gems in New York.

The 93-94 Second Development suit says that because the named tenant was a new company with no assets, the deal required Topco, as guarantor, to maintain at all times an “enterprise valuation” of at least $1 billion and “liquidity” of $150m, according to the filing.

In late May, Topco informed the developer that it did not have the financial means to post an “irrevocable letter of credit” of $15m.

Instead it offered half the amount, saying a transaction would soon close with the UAE-based investor Fajr Capital, a sovereign-backed investment firm with ties to the Abu Dhabi Investment Council that would improve the company’s liquidity. The developer accepted the reduced amount on condition the remainder would be paid by the middle of last month. As of June 17, the outstanding amount had not been paid, the suit alleges.

The lawsuit claims that it later emerged that the Fajr transaction would “impair” rather than improve the firm’s financial position.

The transaction “if it closes, would leave Topco with debts beyond its ability to pay”, according to the filing. And the deal “would be made by the guarantor [Topco] with the intent to hinder, delay or frustrate the claims of the landlord [Second Development]”, it is claimed.

In May, Bloomberg reported that Fajr Capital and the private equity firm Investcorp were in discussions to buy a minority stake of 20 to 30 per cent in the parent group Gems Education which is valued at $1.5 billion to $2bn.

Yesterday, Fajr Capital and Investcorp declined to comment on the development.

The lawsuit alleges that a pretext was manufactured to allow the lease on the Manhattan site to be terminated. The filing quotes Denise Gallucci, the Gems Education Solutions for Americas president, as saying on June 14 that the educational company could use a contract clause to get back the money paid. It also asserts that the final agreement on the project architects was delayed by the tenant to force an automatic termination of the lease after June 16. The suit also claims that the tenant’s failure to negotiate “continuously and in good faith” on this matter constituted a breach of contract.

Gems Education runs more than 100 schools worldwide and had revenues of $500m, according to a separate court document.

Last month, Gems appointed Saeed Al Muntafiq as group chief executive to drive expansion plans. In January, it had said it expected to build six schools a year to tap into the UAE’s rapidly growing private education market.

To fund its expansion plans, Gems has been using loans and leasebacks.

In an acquisition leaseback deal in November, the real estate investment trust Emirates Reit acquired a long leasehold interest in a Gems school campus in Dubai.

Also that month, Gems issued a $200m perpetual non-call five hybrid sukuk, lower than the $500m expected.

Last year, it raised Dh2bn to refinance its investment in schools and to provide additional funds for expansion in the UAE and Middle East and North Africa region.

This month it opened its first school in Ras Al Khaimah, and last month started a $160m K-12 school in Chicago. In September, it will open a S$213m (Dh630.6m) school in Singapore, besides those in Malaysia, China and Egypt.

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Joker: Folie a Deux

Starring: Joaquin Phoenix, Lady Gaga, Brendan Gleeson

Director: Todd Phillips 

Rating: 2/5

So what is Spicy Chickenjoy?

Just as McDonald’s has the Big Mac, Jollibee has Spicy Chickenjoy – a piece of fried chicken that’s crispy and spicy on the outside and comes with a side of spaghetti, all covered in tomato sauce and topped with sausage slices and ground beef. It sounds like a recipe that a child would come up with, but perhaps that’s the point – a flavourbomb combination of cheap comfort foods. Chickenjoy is Jollibee’s best-selling product in every country in which it has a presence.
 

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MATCH INFO

Newcastle United 3
Gayle (23'), Perez (59', 63')

Chelsea 0

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Dominic Rubin, Oxford

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RESULT

Brazil 2 Croatia 0
Brazil: 
Neymar (69'), Firmino (90' 3)