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What is Ashmore Energy International’s end-game? (Part II)

June 19, 2007

A couple of days ago I asked what in the heck did Ashmore Energy International (AEI) see that others didn’t in gas markets like Bolivia and northern Chile?

In May, AEI, which is managed by UK’s Ashmore Investment Management, purchased all of Shell’s assets in Bolivia and its interests in Cuiabá in Brazil. The price of the deal wasn’t made public. On June 1, it announced that it had reached an agreement with CMS Energy to purchase the Michigan-based company’s 50% interest of GasAtacama for a mere $80 million.

GasAtacama, which is 50% owned by Endesa as well, had spent hundreds of millions of dollars to build a pipeline from Argentina and a combined cycle gas turbine (CCGT) at the port of Mejillones.

As everyone knows, the dust hasn’t yet settled over Bolivia’s hydrocarbons sector due to nationalization and there’s not much of a future in the northern Chile gas-fired power sector taking into account Argentina’s uphill battle to plug burgeoning domestic demand.

So what does AEI see that others don’t?

Some analysts believe that AEI seeks short-term investments in countries like Chile and Bolivia. It’s a bit like the story of the the junk yard operator that buys a wrecked or old heap and sells parts of the car for a much bigger profit.

Ashmore Investment Management announced on September 5 that it had raised $1.3 billion to acquire companies that are in “distress.”

The statement reads:

Special situations for Ashmore include distressed emerging market companies with sound underlying operational business in need of financial restructuring, where the investment would typically be made through the debt structure of the company. It also includes transactions involving distressed sellers through private equity participation.

Ashmore launched its first dedicated special situations product in early 1998 after the Asia crisis, and has transacted over 100 deals since then. Of those exited to date the average IRR (internal rate of return) is just over 35%.

While no sensible person is against a company that wants to make a profit, its companies like AEI that have given foreign energy groups in the region a dubious name.

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