Oct 2009 Financial News

New asset purchase - But no sale yet for Columbus - Third Caribbean investment fund under negotiation

Oct 07, 2009

Michael Lee Chin's Caribbean venture capital outfit is close to wrapping up a new deal to invest up to US$40-50 million in the region, and plans to announce the acquisition as early as next week.

At the same time, the Lee Chin-led AIC Caribbean Fund has signalled its intention to test the market to sign up investors for another international capital fund by next year.

"We expect to announce our fourth fund investment shortly," AIC Caribbean Fund partner Douglas Hewson said in an email response to Wednesday Business from AIC headquarters in Ontario, Canada.

But while the fund has made headway on its newest purchase, Lee Chin has missed a September deadline to complete the sale of his 20 per cent holdings in Columbus Communications Limited to appease creditors, though his right-hand man Robert Almeida was still saying up to Tuesday that a deal would happen.

Asking price

The asking price for the Columbus shares is reportedly between US$200 million and US$300 million to pay off US$54 million in overdue and maturing AIC Barbados bond debts this year.

The AIC fund managers are tight-lipped on what new business is being bought but Almeida suggested Tuesday that the investment would be in the range of US$20-50 million.

"The funds to be spent do not represent the total value of the asset," said Almeida, head of AIC Global Holdings Inc.

Lee Chin had in February said he was looking to acquire assets of the troubled Trinidad government-controlled CL Financial Group, which includes 55 per cent ownership of Trinidad-based Republic Bank and a 40 per cent stake in Jamaica Money Market Brokers Limited held by CLICO and CLICO Investment Bank.

But Almeida said the acquisition was not in Jamaica, nor was it the Republic Bank, though he did not fully rule out Trinidad.

Hewson said the fund managers recognised that there were a number of high-quality businesses in the region that have been hit by the global economic situation.

"We are actively engaged in discussions with some of these businesses to explore how the fund might be of assistance. We expect that these discussions will eventually result in a fund transaction," he said.

Addressing the fund's interest in the assets of the CL Financial specifically, Hewson said the focus of the investment vehicle was buying into quality businesses.

"Within CL Financial corporate group there are businesses that meet this definition and we remain interested in them."

The US$230 million Caribbean Fund, which started raising money some three years ago, has already staked US$80 million in Columbus, Jamaica's Advantage General Insurance and building and property development firm, Moya Supervisiones y Contrucciones SA in the Dominican Republic.

AIC officials have said the equity fund is managed as a separate corporate entity from Lee Chin's other businesses, such as AIC Barbados, ultimately owned by his Portland Holdings Inc through AIC Global Holdings.

But Almeida said Tuesday that were a deal for Columbus to remain elusive, the alternative would be to liquidate other undisclosed asset or assets of Portland Holdings to settle the bond debt.

Last report

At last report, the AICB bondholders had given AICB until November to make good on the outstanding bond payments.

Another AIC Global Holdings business, AIC Limited, Lee Chin's main money management outfit based in Canada, was recently sold to Canadian insurance giant Manulife Financial Corporation in a share swap.

Manulife Securities now manages the AIC mutual funds, the mainstay of AIC's core business.

Another AIC Limited offshoot, AIC Investment Services Inc, has been renamed Portland Investment Counsel and serves as the investment adviser on approximately C$2 billion of the Manulife/AIC mutual funds.

Lee Chin himself told Wednesday Business earlier this year that the US government's Overseas Private Investment Corporation (OPIC), the European Investment Bank (EIB), Export Development Corporation of Canada, Caribbean Development Bank and the pension fund of US telecoms Verizon, are the partners in the Caribbean Fund, described by AIC as a "mid-market private equity fund with a mandate to invest in businesses in the Caribbean region".

The fund was a follow-on to the AIC's first Caribbean fund, now said to be fully invested at US$260 million. The original investment strategy called for investing US$400 million in six to eight companies in the Caribbean with an 80 per cent focus on Jamaica, Trinidad and Tobago and the Dominican Republic.

Hewson declined to give details of the distribution of shares among partners in the fund, but OPIC's 2007 annual report declared a US$80-million investment in the fund, with an EIB January 2007 document making reverence to an investment of €45 million, said to be in the Caribbean services sector.

A proposal seeking approval of US$20 million from the World Bank affiliate, International Finance Corporation (IFC) early last year, is listed on the corporation's website as having been "dropped".

"We recently added an additional limited partner. Our fund is now formally closed," Hewson said, adding that the team would be going back to the market next year to woo investors into another investment fund.

The size of the 2010 fund is still to be determined and there will be no overlap between capital committed to the Caribbean Fund II and any successor funds, the managers have said.

"Fund size is largely a function of investment strategy, deal size, geographical mandate, investor interest and deal flow," said Hewson.

"We will have a better sense as we prepare our fund-raising materials since we have not finalised on some of these criteria."

Existing fund's investments

And, while not giving figures on the current valuation of the existing fund's investments, Hewson said the portfolio had "weathered the storm very well".

"Each of the investees continues to perform well and they have generally been meeting or surpassing their operational performance benchmarks. Management of our investees have taken a prudent approach to running their businesses by assuming difficult financial and sluggish market conditions will persist in the near term," he said.

Striking an optimistic tone, Hewson said the current crop of investors are in for the long haul.

"We have received tremendous support from our investors. By definition, as private equity investors, their investment goals are long term. Their commitment to AIC Caribbean Fund is an expression of their belief that the Caribbean region is an attractive area for investment," he said.


Source:
Huntley Medley, Contributing Editor - Business
huntley.medley@gleanerjm.com
Jamaica Gleaner
Wednesday October 7, 2009

http://www.jamaica-gleaner.com/gleaner/20091007/business/business1.html