HONG KONG - HSBC Private Equity and Actis Capital LLP are preparing rival bids for a stake in Franklin Offshore International, sources said on Monday, as struggling private equity firm 3i Group Plc seeks to sell its majority stake in the oil services company.
A deal for Franklin Offshore may fetch about $400 million for 3i (III.L), said sources with direct knowledge of the deal.
British companies 3i, HSBC (HSBA.L) (0005.HK) and JPMorgan (JPM.N), the bank running the auction, all declined to comment, while Actis was not immediately available for comment.
It's a typical mid-market deal and the size of the deal is ideal to many potential buyers in the current market situation when dealmakers may not want to be too early to bet on big deals, said one of the sources.
Besides HSBC and Actis, the deal has also received attention from other Asia-focused private equity firms, which the sources declined to name.
The planned sale of 3i's stake in Franklin Offshore came after the Singapore-based oil services company failed to go public last year when global markets crashed during the financial crisis, the sources said.
JPMorgan was appointed to help Franklin Offshore with its planned initial public share offering last year, said the sources. They declined to be identified as they were not authorized to speak to the media.
3i is one of the few private equity firms that is publicly traded. Its shares declined early this year and hit a record low in late January on fears it may be forced to shore up its finances through a rights issue or cheap asset sales.
The source also noted that the outlook for global oil supply and demand would be a key factor defining the price of the deal.
Franklin Offshore has expanded its business in Azerbaijan, the Middle East, the United Kingdom and the United States.
Franklin works closely with oil majors Shell Oil (RDSa.L) and Total (TOTF.PA), as well as rig owners and offshore contractors, according to 3i's website.
The sources said private equity firms, including HSBC and Actis, had been reviewing the deal for one or two months but it was still too early to say whether a deal could be reached because of price disagreements between buyers and the seller, said the sources.
Prospective investors may need more time to finish their own industry research and due diligence, said the sources.
In late March, 3i, which is under pressure to raise capital, recorded returns of three times its investment from its sale of an 11.32 percent stake in China hot-pot chain operator Little Sheep, once a high-profile deal for 3i in Asia, Reuters reported.
London-based 3i has also said it would continue to focus investment opportunities in China and India. Earlier this year, 3i announced that an infrastructure fund under its management had invested $161 million in a stake in India's Krishnapatnam Port Company Ltd.
(Additional reporting by Michael Flaherty; Editing by Chris Lewis)