Slump in real hits value of 3i’s investments in Brazil; The real has fallen in value from R$1.78 to the US dollar in December 2011 to about R$2.42 today

January 30, 2014 12:27 pm

Slump in real hits value of 3i’s investments in Brazil

By Jonathan Wheatley and Emily Cadman

A slump in the Brazilian real has contributed to a more than 20 per cent fall in the value of assets acquired there over the past 25 months by 3i Group, the London-listedprivate equity group, prompting it to abandon plans for a substantial investment fund in the country.

Julia Wilson, finance director, said the value of 3i’s two existing investments in the country had fallen from the approximately £43m spent to acquire them to about £34m today. She blamed most of the reduction on currency fluctuations and said the value of the investments in local currency was “pretty much still fine”.

The real has fallen in value from R$1.78 to the US dollar in December 2011 to about R$2.42 today.

Ms Wilson said Brazil’s investment climate had turned out to be “a lot choppier than we had thought”, and mentioned last year’s political unrest – when hundreds of thousands of Brazilians protested about poor public services – as a contributor to 3i’s decision not to go ahead with its dedicated Brazil fund.

“The two investments we have in Brazil are good investments, carefully chosen,” she said. “But we had to think carefully about the future. A lot of economic issues in Brazil have been very well trailed over the past 12 months. This is not a decision we took overnight.”

She said that when 3i first invested in Brazil in 2011 it had planned to execute two or three transactions a year. “We have got two done in three years, which is not the flow we expected to see,” she said.

She blamed the slow rate of investment on the demands of conducting due diligence on investment opportunities sought out by 3i, as opposed to those offered by auction to more than one investor.

In 2012 the investment group had said it wanted to launch a fund focused on Brazil. However, in Thursday’s management statement 3i said it would not make any new investments in the region or proceed with raising a fund.

It would instead focus on the management of its existing investments in the country –Blue Interactive, a cable operator, and Óticas Carol, an eyewear retailer – while it would wind down its resources in the region. 3i’s stakes in the two companies were acquired in December 2011 and March 2013, respectively.

3i’s pull back comes amid wider emerging market jitters as the US tapers its bond-buying programme.

Shares in 3i were down slightly in early trading, by 0.3 per cent at 374.85p.

The group said that in the quarter ending December 31, it received £29m from selling assets and invested £247m in buying stakes. Key investments included stakes in Scandlines, a ferry operator in the Baltic sea, and Basic-fit, a European discount fitness operator. 

Simon Borrows, 3i’s chief executive, said: “This was a very important quarter for 3i. We returned to a good level of investment activity, completing four major investments in our private equity business. These investments were the culmination of months of careful work and reflect the strength of our international, mid-market franchise.

“We sourced these investments away from highly competitive auction processes and the prices we paid reflect that. Being disciplined on price is central to our investment approach.”

 

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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