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(Adds bond buyback, analyst quote, details)
LONDON, May 19 (Reuters) - British private equity firm 3iGroup Plc on Thursday reported a 17 percent increase inits net asset value year-on-year to 4.5 billion pounds ($6.56billion) and said uncertainty over Britain's referendum on theEuropean Union would hit M&A activity and investment.
3i, which completed a three-year restructuring last year,said diluted NAV, a measure of the value of 3i's assets, rose to436 pence a share in the year to end of March, against 396 pencein the previous year.
3i, which owns Dutch discount retailer Action and lingeriechain Agent Provocateur, said that its total return for the yearincreased to £824 million, up 25 percent from the previous year.
"The combination of continuing market volatility and theupcoming Brexit referendum is likely to weigh on investorsentiment, with reduced M&A volumes and delays in capitalinvestment likely to persist while the uncertainty remains," Chairman Simon Thompson said.
The buyout firm is in the process of listing Dutch fitnesschain Basic-Fit, which has over a million European members.
3i has been selling businesses to slim down its portfolio,most recently with the sale of Tommee Tippee maker Mayborn Groupto China's Shanghai Jahwa United Co in April.
The company sold 11 smaller or older assets during the year,with proceeds totalling 743 million pounds.
The board recommended a final divided of 16 pence per share,resulting in a full year dividend of 22 pence per share and saidit would double the base dividend for 2017 full year to 16 pencefrom 8 pence, with incremental special dividends also possible.
"The updated (dividend) policy reflects management'sexpectations that the company will be a net divester for thenext 5 years and hence generate strong realisation proceeds,"Barclays analysts wrote in a note.
3i's shares rose more than 2 percent.
Last week, its infrastructure arm said it wouldraise 350 million pounds ($506.77 million) in a share placementto fund existing and future investments.
The private equity group also unveiled a bond buyback plan,to purchase with immediate effect a 331 million euro bond duemarch 17 2017, at its sole discretion.
($1 = 0.6855 pounds) (Reporting By Anjuli Davies; Editing by Rachel Armstrong andJane Merriman)
