3i pushes ahead for flotation next month: Venture capital group to brave deteriorating stock market

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The Independent Online
THE VENTURE capital group 3i, owned by the high street banks, is pressing on with its June flotation despite a deteriorating stock market, on the back of annual pre-tax profits up 23.8 per cent to pounds 65.4m.

According to 3i's pathfinder prospectus for the flotation published yesterday, about 600 of the company's present and past employees stand to benefit from the float because of profit-sharing schemes. More than 2.9 million shares have been allocated to 3i's executive and employee share option schemes since 1992.

If the float values the company at current City estimates of around pounds 1.6bn the windfall is worth more than pounds 15m to 3i employees.

Four directors have several hundred thousand shares or options to buy shares; Ewen Macpherson, chief executive, Brian Larcombe, finance director, Richard Summers and Neil Cross.

Simon Borrows of Baring Brothers, which is sponsoring the flotation, denied that falls in the stock market were endangering the float. The first attempt at taking 3i to the stock market was pulled two years ago because of market turbulence, and another more tentative attempt last year was also abandoned. Mr Borrows said: 'I think there is very little prospect of this one being pulled.'

The company is launching a high-profile television and press advertising campaign to lure 'Jeremys' rather than 'Sids' to invest in the float through more than 70 brokers and intermediaries.

The Bank of England and the clearing banks, which currently own 3i, Britain's leading provider of risk capital to medium-sized companies, are selling 40 per cent of the company, instead of a third as originally envisaged. Thirty per cent has been placed with institutions, while 10 per cent will be offered publicly.

In the year to 31 March 3i's net assets increased by 39.1 per cent to pounds 1.85bn. This was flattered by a pounds 152m one-off write-back of tax provisions because 3i will enjoy investment trust tax status when it is floated. Excluding this write-back the increase in NAV was 27.7 per cent and the total return to shareholders was 30.3 per cent.

Mr Macpherson said that the flotation price would definitely be at a discount to NAV. The banks see their loss on the discount as being balanced by the tax write-off. There was speculation in the City yesterday that the discount could be anywhere between 5 and 20 per cent, depending on the markets when the price is set on 21 June. Most forecasts were between 10 and 20 per cent.

3i paid dividends for the year of pounds 37.6m (pounds 26.8m), representing an increase of 39.1 per cent in dividends per share. The dividend was covered 1.3 times.

Mr Borrows said 3i was benefiting by dramatic upward revaluations of investments made in 1992.

Net new provisions for the year fell from pounds 170.9m to pounds 38.8m.