London-listed private equity shop 3i Group plc, a company that six months ago fired CEO Philip Yea for overleveraging the company in his quest to return capital to shareholders, announced a better-than-expected £951 million ($1.53 billion)
reduction of net debt and said it made no investments in new portfolio companies in the three months to June 30.
In an interim management statement, 3i said it reduced net debt from £1.912 billion to £961 billion at the end of the first quarter, received realization proceeds of £163 million and made follow-on investments of £76 million across its buyout, growth capital, infrastructure, and noncore venture and small investment portfolios. Realizations, therefore, exceeded investment by £87 million.
In the current climate, such caution might be calculated to please, but 3i's share lost 0.6%, or 1.25 pence in a generally rising market by midmorning to reach 225.50 pence, suggesting investors weren't entirely convinced. Blame it, perhaps, on new CEO Michael Queen's downbeat assessment of the general economic outlook, which he said would lead the company to continue "to take a cautious approach to new investment, maintain our focus on the portfolio and ensure that we build upon our strong positions in the midmarket buyout, growth capital and infrastructure markets."
Listed investment companies analyst Christopher Brown of J.P. Morgan Cazenove Ltd. wrote that what little information there was in the statement was "reasonably encouraging." He noted that the debt level compared favorably with the £1.1 billion projected in the prospectus for 3i's recent capital-raising, but added that this was likely due even more to the positive impact of currency fluctuations than to the level of realizations and suggested this gain would be more than offset by the negative value movement on 3i's overseas assets. He also wrote that realizations had been achieved at slightly above previous carrying values, which he described as conservative. -
Jonathan Braude
