3i bond deferred & Euro Fund 4 on track

3i has postponed its plans to issue GBP300 million of perpetual preferred securities due to unfavourable market conditions.

The firm is concentrating on fund raising for its most recent mid-market offering, Euro Fund 4.

3i announced in May that it was to issue GBP300 million of preferred securities, which would have added to the firm’s capital for investment in private equity see evcj June 2002, page 10. These were to be perpetual and bear a fixed non-cumulative coupon. The infrastructure for the bonds was in place, but the firm has decided to defer due to unsatisfactory rates.

Liz Hewitt of 3i said: “We tend to raise capital in this form whenever we see the opportunity to do so at an attractive rate. We would go ahead with it when rates are suitable, but there is no need for us to raise capital at the moment particularly if rates aren’t attractive.” She added that 3i has no need for the extra capital and is concentrating on the marketing of its new fund: “Obviously we have our own cash flow which on the pre-close statement is still strong.”

EuroFund IV, which has a target of EURO3 billion, is still in marketing phase. Half of the fund will come from third party investors and the other half will come from 3i’s cash flow. 3i has been managing external co-investment funds since 1993 and now manages eight international funds with around GBP2.3 billion worth of external assets.

The last fund raised GBP1.3 billion in 1999.

“We are very pleased with progress,” said Hewitt. “We expect to announce a first closing by the end of March next year.” She added that 3i’s investment remit – a pan European focus concentrating on buyouts in the EURO8 million to EURO800 million transaction range – is an attractive option for investors in the current climate. Also standing the firm in good stead is its recent spate of exits including the sale of low-cost airline Go, which generated a return of around 2.7 times the firm’s initial investment. 3i and Barclays Private Equity bought a 62 per cent stake in the company in June 2001 for GBP83.5 million as part of a deal valued at GBP110 million. Go was sold for GBP374 million in cash, representing a profit of GBP231 million for 3i.