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 Are investors tiring of propping up their shareholdings with further equity? That's a possibility. The Financial Times reported Thursday that three of 3i Group plc's top 20 investors have come out against the rights issue -- or issue of new equity to existing investors -- that the indebted London firm is considering. The report said investors were reluctant to dilute 3i's asset value and believed the firm could reduce its debt from existing cash generation and portfolio disposals. Certainly, such reluctance would go some way to explaining why the private equity shop's share price dropped so dramatically after weekend news reports it was preparing a rights issue of up to £700 million ($1.04 billion). The firm has not yet come up with a formal proposal, but shares fell from 371.75 pence on Friday to 318 pence on Monday and 298.5 pence on Tuesday before recovering slightly to 323 on Wednesday. By 11 a.m. Thursday, shares had jumped to 330 pence, as doubts about the plan improved confidence. While you'd have thought any reduction in 3i's £2.1 billion of debt would be welcome, investors obviously feel a rights issue is an expensive and risky way to go about it. Whether that reluctance applies across the market or just to individual companies or sectors remains to be seen. Mecom plc, another investment company -- albeit one that ditched its private equity-backed model early on, but which is focused on the particularly difficult news media sector -- announced it is in the process of raising £140 million to satisfy its banks. Maybe shareholders will feel the risk of further investment is less than the cost of not investing. - Jonathan Braude See story from the Financial Times
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