3i Infra finds Europe buoyant, India a challenge

In a pre-close trading update covering the period 1 April 2011 to 29 March 2012, 3i Infrastructure plc (3i Infrastructure) has reported that its European assets “continue to perform well operationally and financially”. However, the company’s stake in the 3i India Infrastructure Fund has been hit by tough market conditions.

During the period, the firm invested £194.8 million (€233.8 million; $311.9 million) in the acquisition of Lakeside Network Investments (LNI) from Vattenfall, the Swedish power company, which Cressida Hogg, managing partner of infrastructure at 3i Investments plc, described as a “pivotal event” for the company. She added: “As a robust ‘core’ infrastructure asset, LNI will contribute to portfolio income from next year and support the deliverability of the company’s return objectives.”

On the acquisitions front, the firm also invested a second tranche of £8.1 million in GVK Energy, the Indian power firm, having already invested almost $173 million in GVK in December 2010 in exchange for a “substantial minority” stake.

The firm said “strong” portfolio income generation of £73.1 million had covered its target distribution dividend and that it had achieved £132.6 million in realisation proceeds from the sale of three junior debt holdings (in NGW Arqiva, Thames Water and Telediffusion de France), the repayment of I2 vendor loan notes and the repayment of part of a shareholder loan to Eversholt Rail Group.

It also announced that it had raised £64.4 million during the period through the conversion of 64.4 million warrants (adding that all warrants issued at the firm’s IPO have now expired and no further ones are outstanding). It has a current cash balance of £171.8 million, up from £136 million on 24 January 2012.

In India, however, “market conditions…have been more challenging” according to Peter Sedgwick, chairman of 3i Infrastructure. The firm revealed that the mark-to-market valuation of Indian power generation company Adani Power had fallen as a result of a 21 percent drop in its share price since 30 September 2011.

The firm also noted the 7 percent appreciation of sterling against the Indian rupee, also since 30 September. This resulted in foreign exchange losses since the rupee exposure is unhedged.

3i Infrastructure listed on the London Stock Exchange in March 2007, raising £703 million in an initial public offering and a further £115 million in a placing and open offer in July 2008. 

Yesterday, it was announced that 3i chief executive Michael Queen was planning to leave after 25 years with the firm, saying he wished to take on a new executive challenge. Queen had previously been managing partner of the infrastructure business.

A day earlier, ratings agency Standard & Poor’s downgraded 3i’s credit rating from BBB+ to BBB, just two notches above junk status, citing volatile investment performance and persistent negative cash flow.