3i: Speeding Disposals, Expects Further Portfolio Pain

LONDON (Reuters) – British private equity company 3i Plc (III.L) is speeding up the pace of disposals to meet a mid-2010 target of halving its debt even though valuations of its assets will likely continue to fall.

Chief executive Michael Queen also said on Thursday 3i has not “looked at” troubled private equity company Candover Investments CDI.L.

3i said it realised 181 million pounds ($264 million) from asset sales in January and February.

The disposals included the sale of a 9.5 percent stake in sister firm 3i Infrastructure Plc (3IN.L), taking total realisations for the 11 months to end-February 1.1 billion. 3i’s financial year runs to end-March.

“We are turning the heat up on the speed of that realisation,” Queen told reporters, referring to its small minority investments (SMI) and venture portfolios which were valued at a total 883 million pounds at end-September.

The group expects to fully exit the SMI portfolio over the next 12 months and sell most, if not all, of the venture portfolio over the same time frame.

“Even in the toughest M&A markets, I think in living memory, over the last 12 months, we have generated very substantial realisations.”

Queen said the group was pretty confident it can meet plans to reduce its 2.1 billion pounds debt burden by around half over the coming 12-15 months.

Sales of private equity-owned companies have all but ground to a halt in recent months as valuations have plummeted and potential buyers have struggled to get financing.

3i shares were down 2.1 percent at 260 pence at 1030 GMT, with an index of London’s top 350 stocks .FTLC up 0.2 percent.

MORE PORTFOLIO PAIN

3i stock has fallen about 70 percent in value since September as concerns over its debt level, as well as company valuation and performance, have mounted.

Despite the relatively good performance of its underlying portfolio, market multiples are now materially lower than a year ago, 3i said.

Private equity firms have recently revealed the extent of valuation write-downs, with European buyout house Permira [PERM.UL] knocking 36 percent off the value of its assets for 2008 and Blackstone Group (BX.N) writing down the value of its fifth fund by 35 percent.

At its last trading update in January, 3i estimated a 21 percent reduction before currency gains in the value of 50 of its top investments, which together make up almost two thirds of its total portfolio value.

At that time, 3i held about 1.1 billion pounds of assets — 18 percent of its portfolio — at cost. Those assets will now be valued on a mark-to-market basis, 3i said.

Candover recently said it had received a number of expressions of interest in its business after announcing it could no longer meet its planned 1 billion euro ($1.36 billion) contribution to its own fund.

(Reporting by Simon Meads, Editing by Dan Lalor) ($1 = 0.6853 pound) ($1 = 0.7366 euro)