(adds details, background)
By Alison Tudor and David Dolan
TOKYO, April 23 Citigroup Inc (C.N) is in talks
to sell a private equity unit in Japan, Nikko Antfactory, as it
seeks to comply with U.S. banking laws and raise cash to shore
up its balance sheet against market turmoil, sources with direct
knowledge of the matter said.
Citigroup 8710.T boosted its presence in Japan earlier
this year by buying Japanese brokerage Nikko Cordial and listing
on the Tokyo bourse.
The U.S. financial giant is now in the midst of reorganising
its presence in the world's second-largest economy which
includes deciding the fate of Nikko Cordial's private equity
The sale of Nikko Antfactory is mainly being driven by U.S.
banking law which limits a financial group's control over a
non-financial firm, the sources said. This means a private
equity firm owned by Citigroup might be hamstrung when trying to
turnaround a portfolio company.
Nikko Antfactory specialises in small private equity
investments, including buyouts and venture capital deals. It can
also purchase the equity held by institutional investors,
companies or venture capital firms who wish to sell out
To better manage its investments, Nikko Antfactory could be
transferred to another Citigroup affiliate, but the sources said
it is more likely that Nikko Cordial would sell its shares in
the unit to a Japanese financial institution.
A sale would come at a fortuitous time for Citigroup, the
largest U.S. bank, which has recorded more than $46 billion in
write-downs and credit losses since the mid-2007 when turmoil in
financial markets became headline news. Citigroup's shares have
more than halved in the last 12 months.
But the sale of Nikko Antfactory would add a relatively
small amount to Citigroup's capital raising drive, which has
drummed up more than $36 billion since November.
Since Citigroup acquired Nikko Cordial it has already put
the British and Australian units of merchant banking business,
Nikko Principal Investments, up for sale, separate sources have
previously told Reuters.
Nikko Antfactory executives also support sponsorship by a
third party, the sources said, as working under the umbrella of
a respected domestic institution would help them win business in
Japan. This is an especially important consideration in
conservative Japan where referrals and appearances count.
Nikko Antfactory has about $1.3 billion worth of investments
under its wing and capital already committed to it by investors.
INSIDE THE ANT HILL
A decision on the future ownership structure of Nikko
Antfactory may be made in the next couple of months as it is
keen to raise more money. It has about $250 million in hand but
its annual investment rate runs at around $150-200 million, the
sources told Reuters.
The wheels have already been set in motion for another round
of fund raising. Nikko Antfactory is looking to raise about
$70-80 million for a secondary fund and $80-100 million for its
fourth private equity fund, the sources added.
Established in 2000, Nikko Antfactory has bought into
companies such as Virgin Cinemas Japan, a multiplex cinema later
sold to Toho Co (9602.T). It recently invested in Bookoff
(3313.T), a Japanese retailer of second-hand books.
Nikko Antfactory has about 100 employees around the world
including around 65 investment professionals.
The Tokyo-based firm focuses on its home market, Japan, but
is also keen to expand into Asia. The firm already has a hub in
Singapore to help foreign investors buy into its funds in a tax
Nikko Antfactory executives are also monitoring developments
in China and deciding how best to participate in the growing
economy of the Middle Kingdom. The firm plans to spend about
half of its new secondary fund in Asia and half in Japan, the
Nikko Cordial and Citigroup declined to comment.
(Additional reporting by Emi Emoto)
(Editing by Richard Hubbard)