Standard Chartered Plc (StanChart) the lender trying to wind down its private-equity unit, faces pressure from two of the world’s biggest asset managers to buy back the stake in a Singaporean food company it sold them less than a year ago, people familiar with the matter said.
Blackstone Group LP and LGT Capital Partners AG spent about $50 million last July buying 60 percent of Phoon Huat & Co. from Standard Chartered Private Equity, or SCPE, the people said. Now the firms want their money back after the bank dismissed two top executives who were managing the investment, triggering a so-called key-man clause, and announced it wanted to exit most of its deals, one of the people said.
The skirmish may add to the bank’s burden from SCPE, which lost hundreds of millions of dollars on souring investments across emerging markets before Chief Executive Officer Bill Winters decided to wind it down in November, and shows how the impact of that decision will be complex. The business manages about $3 billion for third-party investors alongside the bank’s own cash and many of those deals were also arranged with key-man provisions, according to two of the people, who requested anonymity as the matter isn’t public.
A representative for Phoon Huat in Singapore didn’t immediately respond to requests for comment. Officials for LGT and Blackstone declined to comment.
“As a non-strategic business, the group will exit Principal Finance over time,” Shaun Gamble, a spokesman for Standard Chartered in London, said by email, referring to SCPE. He declined to comment specifically on Phoon Huat. The lender intends to pull back from private equity “by streamlining the business over time and managing its third party investor portfolio to maximize value,” he said.
While the deal is too small to make much of a dent in any of the firms’ balance sheets, there are important client relationships involved for Standard Chartered. Blackstone is the world’s biggest private-equity company and manages about $368 billion across the globe, while LGT is owned by the Princely House of Liechtenstein and manages about $50 billion, according to the firms’ websites.
Phoon Huat, founded by the Wong family, sells baking ingredients such as pie fillings and confectioners’ sugar. The company also runs about a dozen retail outlets in Singapore selling supplies such as cookie sheets and cupcake liners, and offers classes teaching amateur bakers how to decorate cakes and create the perfect bread loaf, its website shows.
SCPE, which focuses on companies in Asia and Africa, purchased about 80 percent of Phoon Huat last July and then sold 60 percent on to Blackstone and LGT, two of the people said. The firms acquired their stake by buying into a fund that was overseen by SCPE chief Joseph Stevens and Bert Kwan, who ran the unit’s Southeast Asian investments, one of the people said.
Including debt, the deal was said to value Phoon Huat at more than 10 times its earnings before interest, taxes, depreciation and amortization.
Blackstone and LGT negotiated a put option as part of the deal that enables them to sell the shares in Phoon Huat back to SCPE if Stevens and Kwan exited the fund, the people said. The two executives were said to have been dismissed months later as Winters decided to shutter much of the business.
Key-man clauses are common in high-risk, complex investment funds that revolve around a small group of top executives. They can give investors the right to withdraw their cash if a senior manager departs.
Standard Chartered had about $1.2 billion invested in “principal finance” entities at the end of 2016, equivalent to just 0.2 percent of the bank’s total assets, yet the division still lost $650 million for the year. SCPE was the subject of “deeper discussions” between Winters and the lender’s board of directors before the CEO announced his plan to wind it down in November, according to an annual report.
“We decided in the latter part of 2016 that this is probably not a business that’s for us.” Finance Director Andy Halford told reporters on Feb. 24.