Electra To Prop Up Portfolio as Valuations Fall

LONDON (Reuters) – Britain’s Electra Private Equity Plc (ELTA.L) is prepared to inject more of its own cash into its companies, it said on Wednesday as it reported a 16 percent fall in the value of its investment portfolio.

Net asset value (NAV) fell to 1,512 pence in the six months to the end of March, Electra said. It wrote down the value of office supplies business Vasanta by 95 percent after the removal of credit insurance forced suppliers to ask for payment on delivery, in turn pushing up company debt levels.

Asked if Vasanta had breached covenants, managing partner Hugh Mumford told Reuters in a telephone interview: “Not yet.”

“We will see — obviously it makes it worse,” said Mumford.

Vasanta was formed in June 2007 through the management buyouts of Kingfield Heath, ISA Group and Supplies Team. Debt facilities totalling 198 million pounds were provided by Royal Bank of Scotland (RBS.L) and Allied Irish Banks (ALBK.I), with Electra contributing 70 million in equity, according to Thomson Reuters LPC data.

Investments in the first six months of its financial year totalled 62 million pounds, Electra said, almost half of which went into propping up existing portfolio companies as well as drawdowns on commitments to third-party funds.

Electra said its priority is to protect the value of its existing portfolio, injecting additional funding if needed.

Electra also saw 18 million pounds wiped off the value of its investment in fellow listed private equity firm Candover Investments Plc (CDI.L), after the company’s share price fell over 95 percent to the end March.

Mumford said Electra may support a sale of its rival.

“We have to wait and see what the terms are,” he said.

Candover is currently in talks with potential buyers after the listed parent ran out of cash to meet its own 1 billion euro commitment to the fund.

STRONGER POSITION

Electra shares were up 3.7 percent at 929 pence at 1100 GMT as the company said it had sufficient liquidity to meet future commitments to third-party funds and do deals.

Commitments to third-party funds, at 109 million pounds, are only modestly in excess of current net cash, said Cazenove analyst Chris Brown in a note to investors.

“The over-commitment problem that has dogged many peers is not an issue,” said Brown.

Candover is not the only listed private equity firm to have run out of cash. SVG Capital, a cornerstone investor in European buyout house Permira, recently raised 170 million pounds to allow it to meet future commitments.

And Britain’s largest quoted private equity firm, 3i Group Plc (III.L), last week unveiled a steeply discounted 732 million pound rights issue as it seeks to reduce its debt pile. [ID:nL8482859]

“We have been dragged with the rest of them, there’s no doubt about that,” said Mumford. “(But) I think the market may be starting to distinguish us from the rest.”

Electra said it has in excess of 300 million pounds of firepower for deals and is in discussions to extend the term on its 250-million-pound banking facility, which expires in September 2010, of which 45 million pounds remains undrawn.

“Substantial investment is unlikely until the terms of this loan has been extended,” said Cazenove’s Brown.

By Simon Meads
(Editing by Dan Lalor, John Stonestreet) ($1 = 0.6591 pound)