FT reported
The Carlyle Group, the private equity firm that spent $186.6m on a minority stake in China Fishery in 2010, has reduced the valuation of its own investment to $12m, according to documents it has sent investors.
That's nearly a 94% asset write down. Debt can become worthless when the asset base evaporates.
One private equity executive in Hong Kong describes the group’s finances as “a spaghetti structure”. His company looked at buying China Fishery last year before deciding that the debt burden was too heavy. “It is difficult to sort out the inter-company loans, there is a lot of debt at every level and the [value of its] hard assets are low compared to the level of borrowing, which is insane,” he says. “Why would anyone underwrite that much debt?”
That's a question for Carlyle and our PEU economy. It's interesting to hear a private equity executive criticize his industry's business model. How often do the greed and leverage boys accuse one another of excess?
