British Seafood cracks as credit is withdrawn

British Seafood Group, the importer of fish from Asia, has gone into administration after banks withdrew trade credit, dealing a blow to 3i, the private equity group that bought 28.5% of the company two years ago.

According to reports, the financial crisis has caused banks to pull back from agreeing letters of credit for companies, causing liquidity problems for importers such as British Seafood, which rely on trade credit to manage their working capital.

The collapse of the company, which went into administration on Friday (Feb 26), has wiped out 3i's stake, which it valued at GBP81 million at the end of September.

While many of the company's subsidiaries had gone into administration, Five Star Fish, the Grimsby-based fish processing business, which British Seafood acquired three years ago, continued to trade as a going concern, 3i said.

Usually a routine type of trade finance, letters of credit have been in short supply in the financial crisis. Several banks have said that the Basel II banking regulations discourage lenders from offering trade credit by placing a high risk weighting on the activity.

British Seafood relied on trade credit to pay its suppliers. At the end of 2008 it had drawn £181.3m of trade facilities from banks that were secured against trade debtors.

The company's revenue jumped from GBP256 million in 2007 to GBP324 million in 2008, while earnings before interest, tax, depreciation and amortisation rose from GBP22.5 million to GBP26.7 million.