India-focused investor companies continue to face restive financiers.
Battles between India-focused companies and their shareholders, especially international funds, continue on the London Stock Exchange (LSE) and its Alternative Investment Market (AIM). The funds allege poor performance and unrelated forays by their investee companies, amidst their own redemption pressures.
After Niranjan Hiranandani, chairman of AIM-listed Hirco, won the battle against hedge fund Laxey Partners in his company, and AIM-listed firm Trinity Capital Plc and its erstwhile Indian fund manager, Trikona Capital, fought over funds under management, Advance UK Trust, a shareholder in the LSE-listed Infrastructure India Plc (IIP), is now accusing the latter for not doing enough to boost shareholders’ interest.
Advance UK Trust had called for an emergency board meeting, demanding the ouster of IIP’s current board of directors. Last month, the company said some of its investors wanted their money back.
“The fund (IIP) is too small, the overheads are too high and it does not have enough money to fund any further investments. Though they have said that they would raise funds, we think they will not be able to raise a large amount, as their share price is too low,” says James Carthew, Investment Manager, Advance UK Trust, in an emailed response to Business Standard.
Advance UK, which holds a little over 10 per cent in IIP, alleged that IIP was looking at a logistics foray, though it was an infrastructure fund. "We think investors should invest in areas that they understand. For instance, IIP was looking at investing in logistic projects. Lgistics has a completely different risk profile to infrastructure," Carthew adds.
An email reply from an IIP spokesperson said: “Last year was an unprecedented year of market turbulence and a global economic downturn. These wider economic conditions have been a cause of frustration for shareholders of a wide range of companies. The company remains of the belief that India remains an attractive market. The company will continue to focus on investing in assets which it believes have the potential to generate substantial capital growth and income for the company and its shareholders. As regards ‘shareholder ire’, it is perhaps worth reiterating that IIP has received the support of approximately 25 per cent.”
Earlier, shareholder activism came to the fore when UK’s Laxey Partners got Hiranandani family’s Hirco to defer the merger of Hiranandani group companies —Hirco Developments and Hiranandani Investment Companies —with itself. Laxey alleged that no proper valuation methods were used in valuing the group companies and the proposed merger gave more control for the Hiranandani family.
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This is happening despite the fact that the stock price of infrastructure funds listed on AIMs have continued to perform well. For instance, IIP’s stock price has gone up by 149 per cent compared to a year back (March 17, 2009 - March 17, 2010). Trikona Trinity Capital grew118 per cent.
“Many of the funds are under pressure from their own investors. When they saw major erosion in the net asset values and net worth of their investments at a time when they want to get out, the problems started,” says Amit Goenka, national director, capital transactions, Knight Frank, a global property consultant. According to sources in the know, hedge funds QVT and Carrousel forced changes in the board of Trikona Trinity Capital Plc (TRC) and its representatives have major positions in TRC now. Some say it is the global slowdown and pressure on funds which led to their pro-active stance.
Consultants feel the poor decisions taken by India-focused companies during the boom of 2004-07 rang alarm bells for the funds, which were still battling redemption pressure from their investors.
“While some were not operating as per their management contracts, others went into expensive investments such as SEZs and buying large land parcels. This raised the hackles of US and European funds,” adds Goenka of Knight Frank.
Adds a former fund manager of a AIM-listed fund: “The problem starts when the short-term expectations of investors clash with long-term objectives of companies. At times, when the fund manager wants to something, investors do not like it,” he says.
However, KPMG executive director Jai Mavani feels the company-shareholder fights may not discourage other aspirants from raising funds from international market. “The context which did not exist earlier will be better clarified now,” he says.
After Laxey fought a bitter fight with the Hiranandanis, they exited investments in Hirco, after Hiranandani got 60 per cent of Hirco’s shareholders to vote against the Laxey proposals.
Niranjan Hiranandani says it is the lack of adjustment in return expectations during the slowdown that led to problems on the part of investors. “Everybody has their agenda. When their agenda does not get fulfilled, they get disillusioned. When there is a recession, one has to live with it,” he says.