Looming loss prompts CVC exit from Australia: sources

HONG KONG/LONDON Fri Mar 16, 2012 10:25am EDT

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HONG KONG/LONDON (Reuters) - Private equity firm CVC is pulling out of Australia, Asia Pacific's biggest buyouts market, as it faces one of the largest ever losses for a firm in the region and rapidly fading bank support, people familiar with the situation said. The firm's high-profile struggles in Australia are a cautionary tale for the large global private equity funds, many of which expanded rapidly into new geographies during the 1990s and early 2000s.

In 2008 CVC CVC.UL raised $4.2 billion for its third Asia fund, still one of the biggest ever for the region.

But the firm has stopped doing new deals altogether in Australia and is cutting staff, the people said, as it stands on the brink of a disastrous loss from its foray into media group Nine Entertainment. That deal alone could see CVC lose more than $2 billion, knocking returns for investors in not one but four separate funds.

Three of the firm's Australia-based team -- or roughly half of its dealmakers -- have already taken jobs with other financial institutions, after CVC told them late last year that it would not being doing deals in the country for the foreseeable future, one of the people said.

The staff were advised to look for other jobs, this person said. CVC declined comment. Meanwhile, the firm has advised banks that it is "de-emphasizing" Australia - industry jargon for a withdrawal - in favor of other countries in Asia, according to two of the people.

CVC recently failed to refinance A$2.6 billion ($2.7 billion) of debt on Nine Entertainment debt due in February 2013 and many lenders have sold on their debt holdings at hefty losses to opportunistic buyers who are hoping to wrest control of the company. All this in turn is raising questions whether or not Adrian Mackenzie, the firm's Australia head of operations and a key player in the A$5.3 billion buyout of Nine Entertainment, has a future at the firm, analysts said.

A former investment banker who moved to Asia to head the Australia unit in 1999, Mackenzie is a member of the firm's investment committee for Asia Pacific, according to CVC's website. For the last year he has been locked in a battle to keep Nine Entertainment out of the hands of creditors, including rival private equity funds Apollo Global Management (APO.N) and Oaktree Capital OAKCP.UL.

Mackenzie, contacted directly by Reuters, declined to comment. A large loss on Nine Entertainment would present a huge embarrassment for CVC and come at a critical time for the buyout group. The firm is widely expected to go back to investors later this year for a new fund for Asia and a new multi-billion euro European buyouts fund next year. Industry insiders expect that CVC would raise less than its third Asia fund. Rivals such as TPG Capital TPG.UL and KKR & Co (KKR.N) are raising new, larger funds for Asia. In recent weeks, CVC has put assets on the block, as it looks to be winding down its Australia portfolio. Hotel and resort owner-operator Mantra Group is up for sale, and CVC also put Australia's largest ticketing agency, Ticketek, on sale, as it seeks to cut debt at Nine. The performance of CVC's Asia fund contrasts starkly with the firm's comparable European fund. According to data on the website of California Public Employees Retirement System, an investor in several CVC funds, the 2005 Asia fund was showing a 20 percent loss in mid-2011, while the European fund from the same year was returning 1.5 times investor money.

($1 = 0.9499 Australian dollars)

(Additional reporting by Victoria Thieberger in Melbourne; Editing by David Cowell)

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