By Myles Neligan
LONDON (Reuters) – British private equity group 3i Group Plc (III.L: Quote, Profile, Research, Stock Buzz) reduced new investments by nearly 40 percent in the first five months of its financial year in response to tougher credit and equity market conditions.
In a statement on Thursday, 3i said it invested a total of 622 million pounds ($1.2 billion) in the five months to Aug. 31, down from 1.01 billion in the same period last year.
Proceeds from asset sales fell to 560 million pounds from 1.01 billion.
“In these markets, we continue to be highly selective in respect of new investment,” 3i Chief Executive Philip Yea said.
Private equity firms, which typically finance their acquisitions mostly through debt, have been hit by an abrupt rise in borrowing costs in the wake of the credit crunch.
At the same time, weak equity markets and slowing economic growth have weighed on the value of their existing investments — and made it more difficult to raise cash by selling them.
3i, which reports full-year results on Nov. 6, did not disclose the change in the value of its investments.
But in a conference call with reporters, 3i Finance Director Simon Ball said the company’s investment portfolio should hold up despite deteriorating economic and stock market conditions.
“The portfolio is as diverse as it’s ever been. In terms of these interesting economic times, we think the portfolio is pretty well positioned,” he said.
By 0743 GMT, 3i shares were 0.8 percent higher at 804-1/2 pence, while the FTSE 100 index was unchanged. This time last year the stock was worth around 1,000p.
“The big unknown is the quantum of unrealised gains,” Cazenove analyst Christopher Brown wrote in a note. “These are likely to be negative, and are driven by quoted equity markets,”
Ball also said 3i was still raising debt finance for acquisitions, despite tighter credit market conditions.
“There is still money available in teRms of debt funds for high quality mid-maRket buyout deals,” he said.
The 3i finance director added that the company had not asked the Financial Services Authority to extend its short-selling ban to 3i shares, but was “reviewing the situation.”
“I don’t think we feel under any pressure to do anything quickly,” Ball said.
On Sept. 19, the FSA imposed a four-month bank on shorting the shares of about 30 banks and insurers amid concerns that the practice was exacerbating declines in the stock prices of key financial institutions.
Several other financial companies have since been added to the list, with hedge fund manager Man Group (EMG.L: Quote, Profile, Research, Stock Buzz) asking to be included earlier this week. (Editing by David Holmes)