3i feels the pinch

As a company known for earning most of its money from investing in high growth companies at an early stage and selling its stake at a profit, 3i could be under pressure because there are few buyers around for its investments. The plummeting stock markets, which devalued invest-ments, will only add to its woes.

As a result, the FTSE-100 company, which in the dotcom heyday invested heavily in the booming sector, has had to face reality by announcing debt write-offs and making provisions for underperforming companies.

In March, 3i admitted it would make record provisions of more than #800m in its upcoming accounts due mostly to writedowns and valuation downgrades.

It warned shareholders that provisions for companies that ‘may fail’ would increase from £140m in the first six months to £260m in the second half of 2002.

3i also told investors it would write down the value of what remains of its technology portfolio amounting to about £360m – almost twice the amount it was forced to write down in 2001.

Finance director Michael Queen said his company had taken a ‘harsher view’ reflecting the current economic uncertainty of its technology portfolio.

He added that it was likely big corporations would delay increasing capital spending programmes until next year.

‘We have seen a huge increase in early stage venture investment in Europe. The market is down about 85% on the same time in 2002. Investors are using their buying power to make cheaper purchases,’ said the chartered accountant. ‘If they are the only external valuation benchmarks, we have to reduce the carrying value of investments to reflect that.’

In November, 3i revealed the stock market slump had led to a dip in its returns on investments. It said total returns had fallen by 14% in its interim results to September. The company said the figure was ‘disappointing’, but not as low as the London stock market, which had fallen 28%.

But it was not all bad news. Its profits on business investments rose to #118m in the first six months of 2002, up from the #5m loss made last year. Three quarters of the figure came from the sale of its stake in low-cost airline Go to rival Easyjet.

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