Hyderabad: The £100 million (Rs705 crore) KSK Emerging India Energy Fund Ltd, the only fund dedicated to energy-related investments in India, is being wound up in a potential setback to some projects at a time when capital for public works is already scarce.
An announcement by the fund to the London Stock Exchange’s Alternative Investment Market (AIM), where it is listed, said the decision to liquidate the fund had been forced by the global recession and internal problems faced by shareholders.
Power failure: A power transmission line. KSK Emerging India Energy Fund was listed on the London exchange’s AIM in November 2006. Harikrishna Katragadda / Mint
Mint could not independently verify details of shareholders, the exact reasons for their decision to wind up the fund, the amounts so far invested by it in Indian energy companies and the time frame for liquidation and delisting from AIM and the Channel Islands Stock Exchange, where it is also listed.
When reached for comment, Sethuraman Kishore, founder and executive director of the KSK Energy group, declined to discuss such issues. “The company expects to arrive at some clarity over the entire issue over the next three-four days or so.”
The resolution to wind up the fund was passed by shareholders, mainly hedge funds, at an extraordinary general meeting held in the Channel Islands on 22 January.
The resolution said the fund would be liquidated and delisted, and money returned to shareholders.
Entities that may be affected by the liquidation include Konaseema Gas Power Ltd and Diamond Power Infrastructure Ltd. The fund had also shown interest in acquiring a stake in Athena Infraprojects Pvt. Ltd.
KSK Energy Fund had on 17 July committed £4.3 million of investment in Konaseema Gas Power to buy a 3% stake.
Konaseema Gas Power is building a 460MW project and planning to expand capacity by setting up another 820MW plant using gas from Reliance Industries Ltd’s wells in the Krishna-Godavari basin when it is available.
According to the firm’s website, the fund also invested some £1.1 million in Gujarat-based Diamond Power Infrastructure Ltd, a Rs550 crore power transmission and distribution equipment manufacturer, to buy a 4% stake that it agreed to increase to 7.5%..
The fund also filed an application with India’s ForeignInvestment Promotion Board in September seeking approval for the purchase of a 49% stake in New Delhi-based Athena Infraprojects for Rs220 crore.
A senior official at Athena Infraprojects, who did not want to be named, said, “The proposal of KSK’s Energy Fund to invest $50 million (Rs244 crore) with the FIPB did not go through and the company finds no problem in raising funds from other investors.”
The decision to wind up KSK Emerging India Energy Fund dovetailed with a downturn in the Indian economy that has made it difficult for infrastructure projects to raise funds and forced companies to stall investments.
“This will have a short-term disruptive influence on some of the companies/projects that it had originally planned to fund,” said Arvind Mahajan, executive director at global consultancy firm KPMG Advisory Services Pvt. Ltd.
“These companies and projects may have to look at alternative options where funds have not been disbursed,” Mahajan added. “To the extent these are viable projects, alternative financing should be available. However, valuations could be impacted in certain cases as financial market conditions are much more difficult today than when these were originally agreed upon.”
Kameswara Rao, executive director for energy, utilities and mining, at consultancy Price Waterhouse, said: “It will not be uncommon to see ongoing impact of the global financial market crisis on India.”
Rao added, “Generally, infrastructure funds have a long-term view, but in the current climate investors’ plans have changed too. In particular, competitive projects are hit by both—funds crunch and threat of flagging demand. The stronger projects are thus trying to directly tap investors.”
KSK Emerging India Energy Fund, which listed on AIM in November 2006, is managed and advised by subsidiaries of KSK Power Ventur Plc., promoted by Hyderabad-based KSK Energy group.
KSK group currently manages two energy sector-focused funds, an unlisted fund called Small is Beautiful and the AIM-listed fund.
The company’s website says the unlisted fund has fully deployed the money it raised, though it was not clear how much was raised and where it was deployed. The AIM-listed fund has made a few initial investments and is targeting investments across the energy sector, the website says.
KSK group has three listed entities, including KSK Emerging India Energy. KSK Power Ventur, the ultimate parent company of the group, listed on AIM after raising some £35 million in 2006. It is incorporated and domiciled in the Isle of Man, part of the British Isles. The third listed firm is KSK Energy Ventures Ltd, publicly traded in India.
The group currently has an operational power capacity of 184MW and 718MW of capacity under construction through various group entities. KSK Asset Management Services Pvt. Ltd, another group company of KSK, based out of Mauritius, acts as the investment adviser for KSK Emerging India Energy Fund Ltd.
Directors tried to convince shareholders not to go ahead with the liquidation of KSK Emerging India Energy Fund “The directors believe that the company remains in a position to generate long-term capital growth for shareholders through diversified exposure to an actively managed portfolio of investments engaged on the Indian power and energy sector,” they wrote in a letter to shareholders on 22 December.
Admitting that the global financial crisis had affected the investment climate, and delayed the deployment of capital raised through the fund, the company said the board “believes that the resultant preservation of funds to date has been in the best interests of shareholders, and that the company remains in a strong position to exploit attractive entry valuations in an increasingly capital-constrained market.”
After failing to convince them, the investment manager informed shareholders in a 14 January statement that it would claim not less than £10 million as compensation for terminating the agreement. Shareholders were also told that they would also have to bear liquidation expenses.
Further, the fund said its board was of the view that “the proposed liquidators, if they are appointed, may be obliged to hold back cash to satisfy the full amount of any such potential claim until such time as the claim has been dealt with. Therefore, a decision to liquidate the company is likely to affect the estimated timing of cash to be returned to shareholders…”
James Toynton of Grant Thornton Ltd, Guernsey, and Richard White of Grant Thornton UK LLP have been appointed as the company’s joint liquidators, according to the company’s website.