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K1 Ventures announced another capital reduction

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On 3 August 2016, K1 Ventures announced another capital reduction of $0.075 in cash for each ordinary share in the capital of the company. This represents another round of mini-windfall for K1 Ventures investors. The capital reduction was announced at a time when its parent company, Keppel Corp is struggling under the current oil price crisis climate.

K1 Ventures is the investment arm of Keppel Corp specializing in business acquisitions. It invests primarily in the US market and has held stakes in transportation leasing company (Helm Holding), energy (Freeport McMoran Exploration), education (Knowledge Universal Holding, KUH) and financial (Guggenheim). As a venture capitalist, its business model is to acquire companies and turn them around to sell for profits.

K1 Venture

Investments

Helm by Chairman and CEO Steven Jay Green, K1 Ventures’ management has an incredible investment track record. Over the years, the company has divested many assets and consistently delivered huge dividends for shareholders. In fact, since 2005, K1 Ventures announced dividends and capital reductions to reward shareholders.

For the uninitiated, capital reduction basically means reducing the capital of the company and return to shareholders. However, unlike dividends, capital reduction will result in the reduction of the company’s Net Asset Value (NAV) from $207,732,000 to $175,248,000. Nonetheless, from the perspective of a shareholder, capital reduction is no different from dividend because shareholders will still receive cash without any changes to their shareholdings.

Financially, K1 Ventures continued to perform well for its business. Group revenue was $195.1 million for the year ended 30 June 2016 compared to $60.6 million in the prior year driven by investment income from KUH of $174.9 million attributable mainly to the receipt of a cash distributions from the sales of the US and international childcare operations.

Group profit before tax was $144.4 million for the year ended 30 June 2016 compared to $31.7 million in the previous year. The increase was mostly due to investment income from KUH, partly offset by an increase in other operating expenses.

Given that its parent company, Keppel Corp is facing headwinds due to the oil and gas downturn, K1 Ventures management will be pressured to accelerate its divestment progress and deliver more cash for Keppel Corp.

Thus, I foresee that in the following quarters, K1 Ventures may announce more dividend payouts. Nonetheless, investors wishing to enter this counter should be cautious because K1 Ventures is already in divestment mode for the past few years. So you need to have a clear strategy in mind before investing in K1 Ventures. Not vested in this counter any more.

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