3i Puts Franklin Offshore Up for Sale

HONG KONG (Reuters) – Private equity firm 3i Group Plc (III.L) has put its majority stake in Franklin Offshore International up for sale, sources said on Friday, hoping to fetch about $400 million for the oil services group.

3i agreed to buy the stake in July 2007 for an undisclosed sum. 3i and Franklin Resources hoped to have the company list in Singapore late last year, but the plans were pulled when the IPO markets crashed, sources said.

JPMorgan Chase & Co (JPM.N) is advising and running the auction process, sources said. 3i and JPMorgan declined to comment. The bank was also assigned to Franklin’s IPO attempt.

The sources declined to be named because they were not authorised to speak on the record.

Private equity firms and corporate buyers have expressed interest in the company, sources say.

Singapore-based Franklin provides oil services and makes products for deepwater moorings. The company has expanded its business in places such as the Middle East, United States, United Kingdom and Azerbaijan.

Franklin works closely with oil majors Shell Oil (RDSa.L) and Total (TOTF.PA), as well as rig owners and offshore contractors, according to 3i’s website.

At the time of the 2007 deal, 3i said the company had a workforce of 356, with 220 based in Singapore.

The commodity boom made investing in oil and mining attractive to private equity firms looking to make a strong investment return. Buyout firms tended to target companies that serviced the oil, gas and mining industries, however, since directly investing in the companies that extracted the resources was seen as too risky for a private equity fund.

Commodity cycles, as witnessed by the current drop, tend to be extremely volatile, with services companies viewed as less exposed — though not immune — to big drops in commodity prices.

One source close to the matter said that the process is in its very early stages, with no formal auction book being distributed yet. The source said 3i doesn’t appear to be under any pressure to sell its majority stake.

But 3i would likely welcome a profitable exit at this point, as the firm, like so many in the private equity industry, is getting hit by the credit crunch and global downturn.

3i is one of the few private equity firms that is publicly traded. Its shares sank early this year and hit a record low in late January on fears it may be forced to shore up its finances through a rights issue or cheap asset sales.

The late January slide, which at one point knocked more than a quarter off 3i’s market value, came a day after the firm replaced Chief Executive Philip Yea and said 50 of its biggest investments had lost 21 percent of their value in the previous quarter.

With deals drying up in Asia, 3i plans to close its Shanghai and Hong Kong offices and relocate its China dealmakers to Beijing this year.

Still, the firm is putting to capital work, recently investing $161 million in an Indian port.

By Michael Flaherty

(Editing by Ken Wills)