3i Shares Plummet on Infrastructure Fund Placement Plan

LONDON (Reuters) – British private equity firm 3i Group Plc (III.L) was among the biggest FTSE 100 fallers on Thursday after it unveiled plans to sell at least 55 million shares in investment fund 3i Infrastructure Plc (3IN.L) via a placing.

At 1130 GMT its shares were 4.2 percent lower at 223.5 pence, having fallen by as much as 7.5 percent in morning trades, as the market worried the placing would have little impact on 3i’s debt burden.

“They need to raise a huge amount of money to pay down their debt. This is a drop in the ocean frankly,” said an analyst who declined to be named.

The analyst said market valuations continue to move against 3i, increasing pressure on the group’s net asset value and its net debt-to-equity ratio.

3i’s net debt at end-2008 stood at 2.11 billion pounds ($3.02 billion), compared with the potential placing proceeds of 47.6 million pounds based on Wednesday’s closing price of 86.5 pence. 3i Infrastructure’s share price was down 5.2 percent on Thursday morning.

While group cash and undrawn commitments stood at 839 million pounds at end-2008, the difficult market for portfolio company sales leaves 3i facing the possibility of a rights issue over the medium-term to refinance some 1 billion pounds of debt due over the next three years.

“If 3i cannot sell some of its assets to generate cash, the risk of a potential capital raising definitely increases as the company is facing a significant amount of debt to be refinanced,” analysts at Nomura said in a note following 3i’s trading update at the end of January.

A spokesman for 3i declined to comment on the possibility of a rights issue.

The spokesman also drew attention to third-quarter sale proceeds of 350 million pounds, and called the capital raised from the placing “a reasonable amount but not a very significant amount”.

The placing will reduce 3i’s stake in the infrastructure unit to about 36 percent from 42.8 percent and the group said it remained its “overall strategy to retain a significant long-term shareholding in 3i Infrastructure”.

3i said it has agreed to a lock-up period of 180 days on the remaining stake in 3i Infrastructure. ($1=.6977 Pound)

By Simon Meads