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Portland bleeds US$7m on Merqueo write-down

Portland JSX Limited, the locally listed fund that’s managed by Portland Private Equity, posted a US$7.23-million net loss for the May quarter due to write-downs related to its Merqueo investment.

However, the equity fund says it’s expecting less volatility going forward.

“There is nothing fundamentally wrong with the publicly listed company. The investment portfolio is recovering value; it is just affected by market volatility,” said Chairman Douglas Hewson, in response to Financial Gleaner queries at Portland’s investor briefing on Thursday.

Declines in values of publicly listed securities are driven by market volatility, he said.

The Portland loss related to a US$7.02-million write-off of online grocery store Merqueo. Post the Merqueo write-downs, Portland believes that the risk of further portfolio value declines is substantially reduced. Investors were previously warned by Portland that the write-down was possible.

Over the years, Portland JSX held investments in 10 companies but sold its stake in two last year. It buys a stake in the company, but has no part in management, and exits the investment after a period.

That was also the strategy for Merqueo, but headwinds disrupted its plan. The company had expected to exit Merqueo, in full or in part, early this year through a listing on the Nasdaq market in the United States. The exit would have allowed Portland to get back its bridge financing and capital through the eventual sale of shares. But Merqueo missed the opportunity for listing and thereafter, market conditions worsened and the deal fell apart.

Hewson described Merqueo as a high-growth, negative-earning business that ran straight into the collapse of Silicon Valley Bank, and two other global banks, in a market where financing ran dry.

“We are working on recovering value there, but it is very challenging,” he said on Thursday.

Remains optimistic

Portland is already behind its timeline to sell off investments to distribute to shareholders, but blamed the delays on the effects of the coronavirus pandemic. Hewson said he remains “optimistic” on realising investments this year, which would be distributed to shareholders.

“We remain quite optimistic for the potential for receiving distributions from the fund, given the state of the underlining businesses and various conversations,” he said.

Portland JSX invests in mostly privately held entities. During the quarter, its positive performers included Diverze Assets Inc, which operates Chukka Caribbean Holdings Limited. That company continues to explore “acquisition opportunities in US Virgin Islands and Jamaica, with an expectation of a financial close on at least one of these opportunities by calendar year end”. Diverze operates under the leadership of CEO Marc Melville.

The restaurant investment in Colombia-based IGA Group – operator of various brands – beat revenue targets but profit margins declined, due to lacklustre earnings at Kokoriko, but earnings rose at Mimo’s and Andrés Carne de Res.

Portland JSX’s financial position and liquidity remains strong with US$24 million in book value, even after the last quarter’s fair value losses, which was a non-cash transaction.

With a market capitalisation at $3.3 billion (US$22 million), Portland JSX trades at 0.9 times its book value, but this is in line with peers such as Sterling Investments at 0.9 times, Sagicor Select Funds at 0.8 times, and QWI Investments at 0.5 times, according to third-party data source Simply Wall St.

On Thursday, Portland JSX’s stock moved 14 per cent to $10.80, but is still trading somewhat off its one-year high of $12.

In July, Robert Almedia, Portland JSX managing partner for Portland Private Equity, was temporarily transferred to act as interim CEO of NCB Financial Group, a large financial conglomerate owned by Michael Lee-Chin, who also controls the Portland companies.

“We do not expect any impact on Portland,” said Hewson, regarding Almedia’s secondment.

Considering fund extension

Portland JSX generally co-invests alongside the wider affiliated fund, Portland Caribbean Fund II, and both are managed by Portland Private Equity on behalf of investors.

Fund II is due to wrap up in 2024 but is considering an extension for another year, to allow sufficient time to exit its remaining investments in private companies. Up to Thursday, the board at Portland Private Equity had not extended the life of the Caribbean Fund II, said Hewson.

Fund II has exited its investments in InterEnergy and Panama Wind. The remaining eight investments in the portfolio are: Productive Business Solutions Limited; Interlinc Group; Diverze Assets Inc/Chukka Holdings; Portland Telecom LP, which holds shares of Liberty Latin America; financial services firm Clarien Group Limited; Outsourcing Management Limited, which trades as itel; restaurant and food service operator Grupo IGA; and Merqueo.

The next fund, Portland Caribbean Fund III, aims to raise up to US$350 million in two main tranches, the first targets being existing clients. It will take another year to secure funds from new participants.

“We expect the first close of Fund III in the fourth quarter and that will make it active,” said Hewson.

“Fundraising will continue – there is a period of time which the partners will allow us to fundraise – and then there will be a final close approximately a year out,” he said.

steven.jackson@gleanerjm.com