Trust status for 3i will bring pounds 150m windfall: Venture capitalist confident of market flotation in summer

BRITAIN'S leading provider of risk capital, 3i, is expected to receive a pounds 150m windfall from writing back deferred tax when it floats on the market in the summer because it will take investment trust status.

The 49-year-old company, which provides medium-sized businesses with capital, will also escape an estimated pounds 50m a year in corporation tax on realised investment gains when it achieves its new status.

Simon Borrows of Baring Brothers, which is sponsoring the flotation, said that 3i was being listed as an investment trust because of the favourable tax treatment. But it would remain an authorised institution under the Bank of England.

Mr Borrows said that the pricing of the issue would be based on net asset values, with a probable discount to NAV. He said that 3i had not finalised the figures for the float but that the company's comparative performance over the past few years was good.

For instance, when shares held by directors were bought and sold by a central trust owned by 3i, the price had outperformed most venture capital investment trusts over the past few years, and also the Hoare Govett smaller companies index.

Yesterday 3i reaffirmed its confidence that its summer float will go ahead, and revealed that the pathfinder prospectus will be issued with the company's results at the end of May.

Mr Borrows said the last attempt at a flotation in 1991 had been dashed by a sharp fall in the stock market, which had itself hit the value of 3i's portfolio. He dismissed City speculation that 3i had intended a float last year, and said the only stumbling block now would be another market crash.

About a third of the company will be offered - the rest of the shares will be held by 3i's founding institutions, the Bank of England and six clearing banks. Ewen Macpherson, 3i's chief executive, said that 3i had pounds 1.6bn of shareholder funds, pounds 2.8bn of investment assets and 3,500 current investments in companies, and had invested pounds 300m- pounds 400m per year for the past three years.

The chief executive said he had spoken to nearly 70 institutions about the float, and the main task was to explain how 3i will differ from most other investment trusts, which may have 25 investments as opposed to 3,500.

Mr Macpherson said that 3i would continue to invest in unquoted companies with sales of more than pounds 1m. There were 113,000 such companies in the UK, and over half a million on the Continent, where 3i had expansion plans, particularly in France and Germany, he said. The company had expanded while only raising pounds 19m from shareholders since the 1970s, he added.