Neil Collins

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One in the eye for 3i

April 28, 2009

If the irritatingly-named 3i (try finding it in the share listings) did not exist, someone would have to invent a vehicle to provide permanent capital to smaller businesses.

 Indeed, someone did, long ago. Owned by the clearing banks and the Bank of England, the company became known as Investors in Industry, and after vicious infighting, was eventually floated on the stock market in 1994. 

 Overseeing a myriad of small investments was steady but dull, and in 2001 its board decided that the world of venture capital looked much more exciting. So it has proved, if not in quite the way the board expected.

 Gearing up, and paying out 2 billion pounds in capital returns and share buy-backs, has left it woefully exposed. It’s market capitalisation, at 1.1 billion pounds, is only two-thirds of its flotation value 15 years ago, and it’s now on the brink of having to sell new shares at a fraction of the price it paid to buy them in.

 The chart shows the sorry decline of the last few years, and the shares are on the slide again, down by a fifth so far this week, as it dithers over its proposed 700 million pound rights issue.

 Please don’t call this a rescue, although given the looming debt repayment dates, it’s not far short, and 3i has already traded in the architect of its expansion for an older hand. The pain has been reflected in the price of the 430 million pound 3.625 per cent convertible bond redeemable in 2011, issued last year to replace an equally out-of-the-money eurobond.

 At the turn of the year, the convertible price fell to 65 pounds per cent, as investors feared a default. The rights issue, when it comes, should prevent this disaster, although each downward lurch in the share price increases the dilution for the long-suffering holders.

 Britain has no shortage of private equity groups, all looking for big deals to make their backers’ fortunes, while smaller companies remain starved of long-term capital. Perhaps 3i can use this issue to draw a line under its attempt to play in the big league, and return to its roots.

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  • About Neil

    "City Editor, The Daily Telegraph 1986-2005 City Editor, The Sunday Times, 1984-1986 City Editor, Evening Standard, 1979-1984 Director Templeton Emerging Markets Investment Trust plc, Finsbury Growth and Income Trust plc Passion: fly fishing (and wife Julia and seven-year-old twins)"
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