 "Rupee volatility cut Sterling value of our investments by 20%: Eredene Capital")
Eredene Capital PLC, the AIM quoted investor in Indian infrastructure, has decided to conduct a strategic review of its investment in India on the back drop of adverse foreign exchange movement and slow down in the country. The fund said that Rupee volatility has reduced the Sterling value of Eredene's investments by almost 20%. It may be noted, already the fund has announced that it will not make any further investments in new projects.
In an update to the shareholders, Struan Robertson, chairman, Eredene Capital PLC spoke about the changing economic environment in India.
“The company's investments are denominated in rupees and so this volatility has reduced the Sterling value of Eredene's investments by almost 20%. In addition, the growth rate of the India economy has fallen again to 4.4% per annum for the quarter ending 30 June 2013,” said Robertson.
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He noted, since the Company's Final Results were announced on July 16, 2013, the Indian Rupee has weakened from Rs 89.6 to the Pound to historic lows in excess of Rs 106.5 as recently as the first week of September 2013.
He further added, faced with both an adverse foreign exchange movement and reduced growth in India, the Board has decided to conduct a strategic review in order to determine the optimum realisation strategy for the company's investments, including the stakes in Matheran Realty and Gopi Resorts. In addition the Company will seek to reduce costs as appropriate. It is anticipated that the results of that strategic review will be released in November along with the Company's Interim Results for the six month period ended September 30, 2013, he said.
It may be noted, in July 2012, Eredene announced as part of its final results that the Company was embarking on a new phase to concentrate on realising value from its existing investments and that it would make no further investment in new projects. Consequently, the Company made an initial return of £15.3m of surplus capital by way of a tender process in August 2012.
To that end, a post year-end sale of Eredene's stake in Ocean Sparkle Ltd for £8.2m at a gross premium over investment cost of 39% in Rupee terms. Advisers have been appointed to handle the sale of further significant parts of the Group's logistics investments, and negotiations continue for the disposal of Eredene's stakes in a low-cost housing development near Mumbai.
In addition, the Board, being mindful of the increasing impact of fixed costs as its investment portfolio reduces in size, has undertaken a review of all ongoing operating costs with a view to reducing these to a level in keeping with its reducing operations. As a consequence, measures have been identified which will reduce the ongoing operating costs by more than 50%. to approximately £1.3m per annum over the next 12 months. Such measures include a reduction in the size of the Board from seven to five, said the company.