Debt Worries Linger for 3i, After Fund Stake Sale

LONDON (Reuters) – British private equity firm 3i Group (III.L) sold 61 million pounds ($85.99 million) of shares in an investment fund it part-owned , but the move did little to remove fears it needs more drastic action to cut its debt.

3i’s shares fell over 7 percent in early trading on Thursday as investors said its sale of 77 million shares in investment fund 3i Infrastructure Plc (3IN.L) would have little impact. By 1518 GMT 3i’s shares were down 2 percent at 228 pence.

“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 2.1 billion pounds ($3 billion).

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 to refinance some 1 billion pounds of debt due over the next three years, analysts said.

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

The placing of 3i Infrastructure shares raised 60.8 million pounds. The shares, representing 9.5 percent of the company, were sold at 79p each, and left 3i owning one-third of the fund. 3i Infrastructure’s shares were down 10.7 percent at 77.25p.

3i Chief Executive Michael Queen said the group remained committed to retaining a significant long-term holding in 3i Infrastructure, with the group having agreed to a lock-up period of 180 days on the remaining stake.

($1=.6977 Pound)

By Simon Meads
(Editing by Rupert Winchester and Erica Billingham)