Morgan Stanley Abyara Stake Sinks

Brazil homebuilder Agra and its investment partner Veromonte appear to have scored a coup in their purchase of a 62% stake in Abyara announced last week. However Morgan Stanley’s special situations fund appears to have posted a loss on the investment. Agra and Veromonte bought the stake from the target’s 3 founding shareholders, which held a combined 40%, and from Morgan Stanley, which had 22%. The latter’s shares were worth close to BRL160m ($100m at the time) in July 2008. Last week’s BRL38m sale price for the combined 62% stake implies Morgan Stanley’s 22% share was sold for BRL13.5m ($5.8m). While the BRL-denominated face value of the stake fell astronomically over the past seven months, this is not reflective of the fund’s overall performance in Brazilian real estate, nor of the loss it posted for the strategy that included the Abyara investment, claims a Morgan Stanley official. He declines to identify the true value of the loss in its Abyara play, citing confidentiality agreements. The special situations vehicle offset its long position in Abyara with other short positions and options on correlated investments, says the executive, who adds that many of the fund’s positions yielded substantial gains. A Morgan Stanley spokeswoman declines to comment. Real estate executives away from the process say either way you cut it, the loss in value on that investment is significant. Morgan Stanley’s investment banking division advised Abyara on the deal while Bradesco BBI advised Agra.