LONDON (Alliance News) - Chenavari Capital Solutions Ltd Friday said its net asset value increased in the months following its initial public offering last October, despite holding a significant proportion of its assets in cash.
In a statement, Chenavari Capital Solutions, which invests in multiple asset classes, including mortgages and loans to small and medium companies, said its NAV was GBP131.5 million on March 31, an increase since the GBP127.7 million reported on October 7, 2013, the date it was listed.
Chenavari Capital Solutions seeks to exploit opportunities arising from the increased regulatory capital requirements for European banks under the Basel III framework, a package of regulations aimed at increasing the safety of the banking system, as banks are looking to offload assets that require them to hold higher levels of capital to support them.
During the reporting period, Chenavari invested GBP81.0 million through the secondary purchase of nine transactions and one primary investment, including about GBP45.0 million in a mezzanine exposure to short-dated loans made by a Portuguese bank to a diversified pool of over 8,200 underlying Portuguese SME borrowers. At the end of the period, Chenavari Capital Solutions was 61% invested and had free cash holdings of GBP45.2 million.
In May, Chenavari Capital Solutions invested about GBP9.0 million in a thick first-loss exposure to primarily investment-grade corporate loans originated by a German corporate and investment bank. On Thursday, about GBP9.0 million was invested in a first-loss credit linked note, referencing the relationship loan book of a core Eurozone bank, having a majority of investment grade exposure.
The company's shares trade on the London Stock Exchange's Specialist Fund Market and are also on the official list of the Channel Islands Securities Exchange. Its IPO raised GBP130.3 million. Its investment manager, Chenavari Investment Managers (Guernsey) Ltd, is owned by Chenavari Financial Group. Chenavari Credit Partners LLP, also a member of the Chenavari Financial Group, provides investment advisory services to Chenavari Investment Managers (Guernsey).
In its report, the investment manager said that it is targeting themes driven by the regulations banks are working to meet in the wake of the financial crisis. In particular, Chenavari Investment Managers (Guernsey) said that the asset quality review currently being carried out by the European Central Bank should highlight new problem areas for certain banks and potentially force them into raising capital or deleveraging. An increased focus on leverage ratios, under which banks must hold a minimum level of capital to support all of its assets in a catch-all move by regulators, has prompted banks to consider trades targeted at the ratio, according to the investment manager.
"These transactions can offer attractive leverage terms on core bank portfolios, which continue to be serviced by the bank," according to the investment manager's report. "As banking systems in European peripheries begin to heal, their banks will begin to focus on optimising their capital profile through sales and risk weighted assets reduction transactions. We have already seen this in Portugal and anticipate this process to pick up pace in both Spain and Italy," the report continued.
In additon, Chenavari Capital Solutions said it has taken out a credit default swap - a kind of derivative insurance policy allowing the transfer of the risk of a borrower defaulting to other market participants in return for a fee - in order to hedge its exposure to the account bank which holds the cash collateral. The hedging move was required because Chenavari had an exposure representing 33.5% of its net asset value at the end of March, exceeding its 25% limit. Chenavari Capital Solutions said it did not take any short credit default swap positions during the period.
Chenvari Capital Solutions said its sector allocation as of March 31 eflects its anticipated portfolio with a significant representation of corporate and retail loans.
Asset class breakdown | Percentage of NAV |
Mortgages | 15.04% |
SME loans | 40.56% |
Trade Finance loans | 3.88% |
Financials | 1.13% |
Commercial Mortgages | 0.61% |
Cash & Hedges | 38.78% |
Total | 100.00% |
It said that geographically its portfolio is diversified with the largest position being an amortising exposure to a pool of Portuguese SME and corporate loans.
Geographic breakdown | Percentage of NAV |
U.K. | 5.83% |
France | 0.16% |
Germany | 0.90% |
Netherlands | 0.02% |
Portugal | 33.56% |
Spain | 9.43% |
Switzerland | 7.12% |
USA | 0.01% |
Others | 4.19% |
Cash & Hedges | 38.78% |
Total | 100.00% |
Chenavari Capital Solutions shares were Friday quoted at 107.43 pence, up 0.6%.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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