3i mulls rights issue(3)

3i Group, the London-listed private equity firm, is considering a rights issue as part of its continued effort to reduce its £2.1 billion (€2.3 billion; $3.1 billion) debt burden.

In response to a report in UK newspaper The Sunday Telegraph that it is planning to raise between £500 million and £700 million, 3i said it is considering “a range of financing options including the potential issue of new equity.”

Investment banks JP Morgan Cazenove and Merrill Lynch will manage the process, according to the Telegraph report. A subsequent report in the Financial Times, said that around £400 million of the proceeds would be used to repay debt, with the remainder earmarked for new investments, citing people familiar with the plan.

The firm is currently in the process of reducing its net debt, which at the end of 2008 stood at £2.1 billion. Michael Queen, who replaced Philip Yea as 3i’s chief executive in January, hopes to have reduced this figure to around £1 billion in the next 12 to 15 months.  

The urgency behind the debt reduction is driven more by market perception than any real need to do so, Queen told analysts from JP Morgan Cazenove at a lunch in March, as there are no covenants on 3i’s debt.

Other measures undertaken by the group include the sale of a 10 percent stake in its infrastructure fund for £60 million and the liquidation of its quoted private equity fund, which will create around £110 million in cash flow.

3i’s share price, which this time last year was around £8.80, was at £3.38 at press time, having recovered slightly from a low of £1.74 in early March.
 
3i declined to comment on details of the rights issue at this stage, saying that decisions will be communicated to shareholders when appropriate.