Abraaj is close to reaching agreement with the Pakistan government that will allow the failed emerging markets private equity firm to sell its 66 per cent stake in Karachi-based K-Electric to a Chinese group.

Two years ago, the company’s sale price to Shanghai Electric Power was set at about $1.8bn, which would have earned Abraaj about $450m.

Now the deal, which had been held up by regulatory approvals, is being renegotiated, probably at a lower price, according to senior people at Abraaj and people close to the transaction.

The proposed sale is still likely to prove the biggest source of recovery funds for Dubai-based Abraaj’s creditors and will also provide some money to investors, the people added.

“There is more momentum than ever before,” one Abraaj executive said.

Abraaj was once the Middle East’s largest buyout fund with close to $14bn of assets under management. It was sent into a death spiral last year after investors accused the indebted firm of misusing funds.

The company and its Pakistani-born founder, Arif Naqvi, have denied any wrongdoing.

Liquidators have since been negotiating to sell assets to recover $1.1bn in debts. In recent months, Mr Naqvi has been using his connections with the new Pakistan government of prime minister Imran Khan to salvage the transaction, even though it comes too late to save Abraaj itself.

Mr Naqvi has described as erroneous claims that he was one of the biggest funders of Mr Khan’s unsuccessful 2013 election campaign.

“The bureaucracy under the previous administration was the biggest obstacle to closing the deal”, says one person with direct knowledge of the matter. “But this government is stronger.”

At the end of December, Shanghai Electric informed the Pakistan Stock Exchange that it intended to make a revised offer for a majority of the utility, which is a critical supplier of electricity to Karachi, a city with a population of nearly 15m and rising. That announcement followed a meeting between Shanghai Electric, Mr Khan and Mr Naqvi in Islamabad.

The reduced valuation is in part due to a change in the tariffs that utilities are allowed to charge introduced before the original sale was agreed.

In recent months, Chinese engineers have started work at K-Electric amid fears there could be more power cuts when demand overwhelms supply, especially in the hot months. “They are terrified if there is a lack of improvement in the technical infrastructure,” the person adds.

The sale is part of an ever growing number of transactions between Chinese interests and Pakistani companies. Chinese infrastructure companies are building ports, power plants, roads and railways as an initiative which is expected to see about $65bn in spending over five years.

This article has been amended to reflect Mr Naqvi’s denial of claims that he was a key funder of Imran Khan’s 2013 election campaign.

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