The private equity owners of Gala Coral have conceded that their investments in the gaming group, which was once valued at £5 billion, are worthless, only a year after pumping £125 million into the company in an attempt to prop it up.

Candover, one of Gala Coral’s three owners, said yesterday that it had written down the value of its holding in the company to zero, having previously written it down by 50 per cent about a year ago.

The Times has learnt that Cinven has also written off its investment in Gala, while SVG Capital, the listed feeder division of Permira, the gaming operator’s third owner, wrote down its investment to a nominal figure in December.

The write-offs at Gala, the third-biggest private equity-backed business in Britain, came at a bad time for the industry. Candover, Kohlberg Kravis Roberts (KKR), the American fund, and Terra Firma, Guy Hands’s private equity firm, have suffered huge losses.

Gala Coral was formed by a merger between Gala and Coral Eurobet in 2005, but its component parts have been through a series of private equity owners in the past decade. The company has £4.4 billion of debt, including shareholder loans of £1.6 billion, but is operating within its banking covenants.

A spokesman for Gala Coral said: “The only thing we are concerned with is running the company. We’re trading in line with expectations, slightly ahead of last year. There is no financial restructuring going on.”

Gala Coral, which employs 19,000 people and operates 1,566 Coral betting shops, 165 bingo halls and 31 casinos, has struggled since the double whammy in 2007 of the smoking ban and the scrapping of lucrative high-payout gaming machines.

Terra Firma has nearly halved its valuation of its biggest investment – its stake in EMI, the music group. Terra Firma, which spent €2.6 billion of its own cash on the takeover of EMI, has written its stake down to €1.3 billion, although the company is still covering its interest payments.

The group’s business review, published yesterday, says that most other companies in Terra Firma’s portfolio are performing well, but Annington, a property company, made a £13 million loss after interest. Mr Hands added that money set aside for investment staff bonuses at Terra Firma would be returned to investors who had suffered from the falls in value.

Candover Investments, Candover’s listed unit, said that the value of its investment portfolio had halved since last year. It is in talks with its bankers about options including relaxing its banking covenants and allowing investors to cut contributions to its €3 billion fund. Candover is also cutting staff and could close East European and Asian operations.

It may suspend new investment until it has resolved its funding problems – adding to concerns that it will be forced to put its fund into run-off. Candover Investments, the biggest investor in Candover’s funds, has not spoken to its shareholders about an equity-raising, suggesting that it is unlikely to follow SVG Capital, which yesterday completed a deeply discounted rights issue that nearly half its shareholders rejected.

Gerry Grimstone, Candover Investments’ chairman, said: “You have to keep your head down at the moment and realise the value in the portolio. Where we always made money was by realisations and you only need one good one to turn things around. Private equity firms aren’t buying at the moment, but there will come a time when corporate buyers come back.”

Losses mounted at KKR, whose listed division took writedowns of 32 per cent in the fourth quarter of last year. Shares in KKR Private Equity Investors have dropped by 85 per cent over the past year.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive