International private equity company 3i Group says the businesses in its portfolio have continued to perform relatively well, but that valuations will inevitably be impacted by further
International private equity company 3i Group says the businesses in its portfolio have continued to perform relatively well, but that valuations will inevitably be impacted by further falls in quoted markets and by tougher economic conditions.
Michael Queen, 3i chief executive (pictured), says the firm’s key priorities are to manage its existing portfolio, to take actions to reduce the group’s net debt and to position 3i for the upturn.
‘We have made progress on each of these objectives since our last statement in January, a period which has seen no improvement in general market conditions,’ he says.
‘Actions include a further GBP181m of realisations in January and February which means we have delivered total realisations for the 11 months of GBP1.1bn. We have also announced a recommended offer to acquire the assets of 3i Quoted Private Equity.’
3i says that despite the relatively good performance of the underlying portfolio, the continued significant declines in key indices since 31 December will inevitably have a further negative impact on portfolio valuations. For example, the FTSE Euro Mid index fell by a further 15.8 per cent between 31 December 2008 and 27 February 2009, and by 42.2 per cent since 31 March 2008.
At 30 September 2008, GBP1,504m (25 per cent) of the total portfolio was valued at cost. In the Interim Management Statement published in January 2009, it was reported that GBP420m of this portfolio was moved from a cost based valuation. The board has decided that no assets will be held at cost at 31 March 2009. In addition, the non-core assets in the SMI and venture portfolios will be valued on their expected disposal proceeds.
Realisations in the two months to 28 February included the sale of a number of non-core holdings in the venture portfolio, the placing of 9.5 per cent of the issued share capital of 3i Infrastructure, and a number of growth capital disposals.
The uplift on opening carrying value from the sale of investments has declined significantly from 47 per cent for the six months to 30 September 2008 to 28 per cent for the 11 months to 28 February 2009. The continued sale of non-core assets in March will further reduce this average uplift percentage.
3i invested a total of GBP898m in the 11 months ended 28 February 2009, compared with GBP2,154m in the equivalent period last year.
Realisation proceeds received by 3i totalled GBP1,123m in the 11 months ended 28 February 2009 (2008: GBP1,619m).
On 23 February 2009, the boards of the group and of 3i Quoted Private Equity announced that they had reached agreement on the terms of a recommended acquisition of the assets of 3i Quoted Private Equity by 3i, to be effected through a voluntary solvent liquidation of 3i Quoted Private Equity. This would result in a net cash inflow to 3i of approximately GBP110m and in the transfer of the five assets in 3i Quoted Private Equity’s portfolio to 3i’s growth capital business.
The proposed acquisition values each 3i Quoted Private Equity share at 88.8 pence. Under the proposed acquisition, 3i would offer all third-party 3i Quoted Private Equity shareholders 50p in cash and 0.1706 shares in 3i Group for each 3i Quoted Private Equity share, based on the 3i share price of 227.5p on 19 February 2009.
Upon the liquidation of 3i Quoted Private Equity, the liquidators will implement a scheme involving the distribution of assets of 3i Quoted Private Equity to 3i Group.
This transaction is subject to approval by an EGM of 3i Quoted Private Equity shareholders, which is expected to be held at the end of April 2009. Subject to EGM approval, 3i Quoted Private Equity will be delisted and will cease to exist as an independent entity.
