1987 - Year of the shrinking market?
Investors in Industry (known as 3i), Britain's leading investment company for lending to the private sector, so far plans to tap the international capital markets in 1987 for roughly the same amount as in 1986. That will provide 3i with around 200 million for onlending. This, plus its rapidly growing equity investments, will allow 3i to keep up the same volume of total investment in UK industry, about 350 million.
But these plans may be revised upwards if the Thatcher government's recent projections for industry come about. The Chancellor of the Exchequer's autumn statement forecast a strong increase in capital investment coupled with a pronounced shrinkage of UK corporate liquidity. And the London Business School recently projected that corporate liquidity will fall to 2.6 billion in 1987, compared with 3 billion this year and 6.4 billion in 1985. This should add up to a greater demand for funds from 3i.
But, according to Donald Clarke, 3i's director in charge of finance, his company's lending to the larger UK companies has not been worthwhile on a risk/return basis for some time. Intense competition, especially from foreign bank lenders, has cut margins on this business to the bone.