London Stock Exchange-listed 3i Group has lost its prestigious FTSE 100 status.
The group's shares were trading below the 200p mark yesterday afternoon, giving it a market capitalisation of about $1.93bn. That was insufficient to keep it in the FTSE 100 when the committee met to decide the make-up of the index last night. The results of their decision will take effect from next Monday.
3i shares rallied slightly in early training on Wednesday, rising to 203.5p at 09:30 BST.
Some index tracker funds will be forced to sell their 3i stock as a result of the group falling out of the FTSE 100, thereby putting further pressure on its share price.
On Tuesday, 3i shares were trading about 51 percent below their 52-week high. In March, the firm said its net asset value was 350p per share, so the current share price would represent a discount of about 43 percent to NAV. The analyst believes 3i's current NAV is about 315p, suggesting a discount of 36 percent. However, this is still higher than some of its listed private equity peers. Sizeable discounts to NAV have been a source of significant shareholder unhappiness.
In 2009 the firm fell out of the FTSE 100 for the same reason, after its market capitalisation dropped to £787 million, well below the required threshold of £1.7 billion.
However, a source close to the group stated 3i would not be changing its investment strategy, pointing to some successful transactions in recent months. The source suggested 3i remained confident that its global presence would stand it in good stead in the longer term.
Recent negative media coverage of the administration of portfolio company Chorion, a family entertainment provider, clearly won't have helped investor confidence. However, the source noted 3i had already written the business down to zero, so it would not have had a direct financial impact on shareholders.
Liberum Capital analyst Henry Freeman told Private Equity International that 3i might be suffering from some negative market sentiment towards private equity in general. “3i …could be used by mainstream fund managers as a proxy on sentiments toward private equity”.
Sources also suggested the desire for liquidity might be putting some investors off owning private equity stocks. Freeman said the demand for greater liquidity is putting pressure on firms to do buybacks – although he pointed out the pressure on management to return capital to shareholders existed not only in private equity but across the board.