3i confirms rights issue plans

The listed firm will raise around £700m via a discounted rights issue. The proceeds will let the group pace its disposal of its existing portfolio investments and pay down debt.

London-listed private equity firm 3i Group has confirmed it is to raise around £700 million (€784 million; $1.05 billion) via an underwritten rights issue.  The 135 pence share price represents a discount to the theoretical ex-rights price of 39.8 percent, the firm said in a statement.

The proceeds of the rights issue will be used to continue the reduction of 3i’s net debt without the need to sell off assets too quickly, the firm said in a regulatory announcement. The firm will also use the cash to take advantage of new investment opportunities.

Details of how the proceeds would be split between paying down debt and making new investments have not been revealed, but previous press reports, citing people familiar with the plan, said around £400 million would be used to delever, with the remainder earmarked for new investments.

Under the leadership of Michael Queen – appointed as chief executive in January – 3i is currently in the process of reducing its net debt. As of 29th March 2009, the group’s net debt stood at more than £1.9 billion: 103 percent of the firm’s total equity.

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.

3i’s share jumped 21 percent on the news this morning, from £3.21 at opening to £3.90 at press time.