SOARING SUCCESS(2)

Brazil's budget airline industry recently swelled, as did returns for limited partners of distressed specialist MatlinPatterson Global Advisors. The two events are intimately connected.

The New York-based private equity firm made a 10.5x return on its investment in Viação Aérea Rio Grandense, commonly called Varig, when it sold the Brazilian airline in March to Gol Transportes Aéreos, a low-cost Brazilian airline founded in 2001.

Varig was established in 1927 and for decades was Brazil's leading international airline. But as with many Brazilian companies, it fell on tough times in the 1980s and 1990s. The airline crises following the 1991 Gulf War and the 2001 attacks on the World Trade Center, coupled with increased domestic competition, compounded its suffering.

The airline eventually declared bankruptcy in 2005, and the following year, Varig was snapped up for $24 million by Volo do Brasil, a MatlinPatterson-led consortium that also owns Varig's former freight business, VarigLog.

MatlinPatterson quickly got to work restructuring the firm: just eight days after the acquisition, the airline shaved off 60 percent of its workforce, laying off 5,500 workers, and began reducing its flight schedule.

Less than a year later, it sold Varig to Gol for $320 million (€241 million), including the assumption of $45 million in debt. Gol intends to operate Varig under the same name, but will turn it into a low-cost carrier.

Less than a year later, it sold Varig to Gol for $320 million (€241 million), including the assumption of $45 million in debt. Gol intends to operate Varig under the same name, but will turn it into a low-cost carrier.

At the time of its investment in the airline, MatlinPatterson was investing from its second fund, which closed on $1.7 billion in 2004. Its debut fund closed on $2 billion in 2002.

Founded by Credit Suisse First Boston alumni David Matlin and Mark Patterson, MatlinPatterson is thought to be raising a $4.5 billion third fund, expected to close sometime this year. The firm closed a $500 million hedge fund vehicle in April. MatlinPatterson did not return a request for comment.

CDC INVESTS IN AFRICAN AND ASIAN MICROFINANCE
UK government-backed fund of funds CDC has committed $4.5 million (€3.4 million) to Access Microfinance Holding, a holding company that invests in microfinance institutions in Africa and central Asia. Microfinance is the business of making small loans to the poor, with amounts often starting below $100.

Access, which attracted total commitments of $28.7 million, held a first close on $24 million in September 2006. The firm was founded in 2006 by LFS Financial Systems, a German consulting and management firm. Other shareholders include the European Investment Bank and the International Finance Corporation. Access currently has stakes in commercial banks in Azerbaijan, Madagascar and Mozambique.

The Access deal brings CDC's overall investment in microfinance funds to $12.5 million since 2004. This figure includes investments in Lok Capital and Shore Capital International's Indian microfinance funds. Hywel Rees-Jones, investments director at CDC, says: “The global microfinance industry has grown at a rapid rate, with now more than 12,000 microfinance MFIs worldwide servicing more than 60 million clients – up from just 8 million in 1998.”

ECP CLOSES BIGGEST PANAFRICAN FUND EVER….
Washington DC-based Emerging Capital Partners has raised $523 million (€391 million) for a new pan-African fund, the biggest pool of private equity capital ever raised for investment across the continent. The fund's predecessor, AIG Africa Infrastructure Fund, raised $400 million in 2000. The new fund has already made several investments including Anvil Mining in the Democratic Republic of Congo, pan-African Bank of Africa and engineering company Spencon International in Kenya. ECP has offices in Johannesburg, Bonanjo Douala, Cameroon, Ivory Coast and Tunis.

….AND MAKES 3X RETURN ON AFRICAN BANK EXIT
The firm has also sold its stake in Ecobank Transnational, a regional bank that invests in 18 West and Central African countries for $35.9 million (€27 million). The sale has generated a return of three times the firm's original investment of $11.8 million in 2006. Tom Gibian, ECP's chief executive officer, said: “It was a very positive experience because it demonstrated that even these small West African markets have considerable liquidity.”

The sale is the first exit from EMP Africa Fund II. That fund's predecessor, the AIG Africa Infrastructure Fund, has also made several lucrative exits including Sokhna Port Development Company and NCT Necotrans. The firm has returned more than $600 million to investors to date.

ACTIS LEADS $134M INVESTMENT IN NIGERIAN BANK…
Emerging markets private equity firm Actis has led a $134 million (€100 million) investment in Nigerian bank Diamond, the firm's second biggest Nigerian deal to date. Actis has acquired a 19.1 percent stake. Founded in 1991 and listed on the Nigerian Stock Exchange, Diamond provides corporate, commercial and retail finance through 117 branches across Nigeria and the Republic of Benin. Actis' previous investments in Nigeria include a $43 million buyout of Starcomms, a wireless telecoms operator; a $12 million minority stake in UAC, a food business; and an undisclosed commitment to Palms Mall, a Lagos retail facility.

Politically, Nigeria is currently experiencing a period of stability. President Yar'Adua was elected in April amidst allegations of malfeasance, vote rigging, ballot box stuffing and non-transparent counting. Despite the controversy, however, it was the first democratic transferral of power in the country's history.

…AND FINALLY LANDS SOUTH AFRICAN FUND ADMINISTRATOR
The shareholders of South Africa's largest pension fund administrator Alexander Forbes have accepted emerging buyout firm Actis Capital's R8.4 billion ($1.2 billion, €884 million) long-running take-private bid for the business. In June, Actis was successful with its third offer in eight months. The emerging markets buyout firm has also placated initially sceptical shareholders by setting up a listed vehicle, representing 26.5 percent equity of the company to be listed on the Johannesburg stock exchange. Actis will acquire the remaining 73.5 percent.