SVG writes down Permira deals to tune of £67m

The listed alternative asset manager incurred losses on its investments in four Permira portfolio companies last year, but its fund management business grew and Permira made ten profitable realisations.

The biggest investor in Permira SVG Capital wrote down three investments in Permira funds to a total of £66.7 million (€86.8 million; $133 million) in the year to December 2007, while the value of its investment in Galaxy Entertainment, a listed Chinese casino, plunged, according to its annual results.

Nicholas Ferguson:
there's always
some write-downs

SVG’s pre-tax profit fell to £153.4 million for the year from £215.2 million the previous year.

SVG chairman Nicholas Ferguson told PEO: “We’re quite happy with the results and the portfolio of underlying companies.” He said the fall in the company’s profits was due to limited realisations in the second half of 2007 following the change in the credit markets.  

Despite the loss in value at the four companies, SVG increased in net asset value per share by 14.3 percent to £9.74 per share, including a dividend of £0.075 per share paid in May.

The firm adjusted its valuations of its stakes in Permira, Candover and Cinven-owned UK gambling company Gala Coral, which nearly halved in value from £42.9 million to £22.8 million.

It also wrote down stakes in KKR and Permira-owned German media company ProSiebenSat.1 from £125.4 million to £102.9 million and in Permira, Blackstone, Carlyle and TPG Capital-owned Freescale Semiconductors from £146.9 million to £122.7 million. The $17.6 billion acquisition of the semiconductor company was financed using $14 billion of debt.  The results said the write down at the highly-geared Freescale was due to the company underperforming.

Paul Deninger, chairman of boutique US technology bank Jefferies Broadview, said at the time of the Freescale acquisition it was overleveraged by 20 times to comparable companies in the sector and this “terrified” him.

Ferguson said: “There’s always something that gets written down.”  At ProSiebenSat.1 sales were up 30 percent but media comparable sector multiples have dropped, he said. While Gala’s revenues were affected by the smoking ban, the majority of the change in value at the company was due to sector multiples going down.

SVG's HK$6.5 billion (€548 million; $840 million) investment in listed Chinese Casino company Galaxy, in which Permira invested towards the end of the year, also fell from £108.4 million to £94.1 million to the end of December.

In the last three months to today Galaxy’s share price has fallen a further 20.8 percent to $5.80 per share (€3.8 per share). This indicates a further decrease in value to around £75 million.

The fund received distributions from 10 realisations during the year, which were £138.2 million higher than December 2006 valuations reflecting an average multiple of 3.1 times.

The firm’s fund management business SVG Advisers was valued at £106.4 million. Its third-party funds under management grew by 33 percent to €4.4 billion ($6.7 billion) during the year and the business reported profit before tax of £17.6 million, an 89 percent increase on 2006.

SVG’s private equity portfolio investments were dominated by Permira’s record €11 billion fourth fund, which was 35 percent invested and 47 percent committed. SVG committed €2.8 billion to this fund, more than any other investor in one of the world's largest commitments to a buyout fund.

SVG also made £130.3 million of new commitments to different funds during the year.