3i, the UK's oldest private equity fund, is to raise £732 million in a rights issue after it lost £1.9 billion last year.

The fund, which owns brands such as Agent Provocateur, the lingerie group, and Foster and Partners, the architectural practice, said that the rights issue would enable it to cut debt and to strengthen its portfolio.

Investors will be offered nine new shares for every seven that they own at a price of 135p, a 60 per cent discount to 3i's closing share price of 339p yesterday. The company said the discount would be 40 per cent to the theoretical ex-rights price. Shares in 3i rose by 3.24 per cent to 350p in early trading today.

The cash call came as 3i admitted that the economic downturn and the collapse in the stockmarket had severely impacted its portfolio of assets.

The net asset value per share - a measure of the underlying value of the group's holdings - more than halved to £4.96 in the year to the end of March from £10.77 the year before.

Total assets under management fell from £9.8 billion to £8 billion and the group plunged to a pre-tax loss of £1.9 billion compared with a profit of £834 million the year before.

Michael Queen, who became chief executive in January, has been attempting to cut the group's debt and said today that the rights issue would enable the company to strengthen its balance sheet and take advantage of cheap investment opportunities in the stock market.

3i said today that its net debt had risen to £1.9 billion, equivalent to a gearing of 103 per cent. Mr Queen has taken a number of steps to reduce borrowings since taking over from Phil Yea in January, including selling a 9.5 per cent stake in 3i Infrastructure for £61 million.

The fund has also sold more investments than it has made, which led to a net disinvestment last year of £340 million.

Mr Queen said: "My immediate priority is to ensure 3i performs to its potential through the current downturn and is well placed to use its strong market position to take advantage of the opportunities that will be available as the global economy starts to recover."

JPMorgan Cazenove and Merrill Lynch will act as joint bookmakers for the issue.

Baroness Hogg, the chair of 3i, said: "We believe that the actions taken to reinforce 3i's financial strength give the company the time to manage its well-diversified portfolio to maximise value for shareholders, and to position us to take advantage of well-priced investment opportunities in the upturn."

The former chief executive, Mr Yea, was blamed for allowing 3i's debt to spiral after he returned £800 million of capital to shareholders just before the onset of the economic downturn. Mr Yea received a pay-off of £790,000 after being ousted in January.

3i's share price has fallen by 65 per cent in the past year and the rights issue will be at a 86 per cent discount to the fund's peak price of £9.66 achieved last August.

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