BackAvigo Capital, LPs set to battle it out in court
LPs allege mismanagement of funds even as Avigo questions the investors' decision to terminate the fund's services
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Mumbai: Avigo Capital Partners, a mid-market private equity fund, and its limited partners (LPs), or providers of capital, are set to battle it out in court, with the latter alleging mismanagement of funds and the former questioning the investors’ decision to terminate the fund’s services.
Avigo may look to sue UK-based CDC Group, one of the LPs in the fund, in a Mauritius court, said two people familiar with the developments.
On Tuesday, VCCircle reported that Siguler Guff and Co., one of the LPs in Avigo Capital, has taken over the responsibility of overseeing exits from the investment firm’s portfolio.
The decision came after the fund returned only 30% of the $125 million in capital raised as part of the Avigo SME II fund in 2005, VCCircle reported. The fund was to return capital in August when the life of the fund came to a close.
Separately, The Economic Times reported that LPs had sued Avigo for negligence and mismanagement of funds. The LPs include the International Finance Corporation (IFC), an arm of the World Bank, CDC Group and Siguler Guff among others.
Avigo is now trying to hit back and challenge the decision of some of the LPs to terminate it as the fund manager.
According to one of the two persons cited above, CDC Group has been trying since late 2014 to terminate Avigo Capital as fund manager of Avigo SME Fund II for lack of profitable exits. Both persons spoke on condition of anonymity.
The first resolution to remove Avigo was filed by CDC in October 2014 but it was not approved by other investors. Later, CDC moved a Mauritius court to get the resolution passed. That case is still pending. In December 2014, CDC filed another resolution in London.
In its proposed suit, Avigo will demand monetary compensation over the damage caused by CDC’s effort to terminate Avigo from SME Fund II, said the second person.
The fund in question is under liquidation in Mauritius and in India. BDO Mauritius, a chartered accountancy firm, is handling the liquidation of the fund in Mauritius, while Grant Thornton is handling the process in India.
Avigo SME Fund II, a growth capital and buyout focused small and medium enterprises (SME) fund, was launched in 2006. The focus of this fund was to invest in sectors including engineering, manufacturing, energy, infrastructure and industrial services.
Some of the investments made by the fund included Hythero Power Corp., G.E.T Power Ltd, Bharat Box Factory Ltd, Rinac India Ltd, Aeroflex Industries Ltd and Comat Technologies Pvt. Ltd. However, a substantial part of the fund was invested in Chennai-based listed entity Tecpro Systems Ltd. According to The Economic Times report, 75% of the fund was invested in Tecpro. Mint could not confirm this.
Avigo, however, failed to exit its investment in Tecpro when the firm’s shares hit a high of ₹ 420 in November 2010. The company’s stock price has fallen to ₹ 7 per share, as of Wednesday’s trade.
Avigo and Achal Ghai, founder and managing director, Avigo Capital, hold about a 16% stake in Tecpro.
“Somebody is trying to malign our reputation. We are evaluating all options," said Ghai, without disclosing further details.
A CDC Group spokesperson said the firm is not in a position to comment. Mails sent to Siguler Guff and IFC did not elicit any responses.
“PE investors can play a larger role with value addition into the company than a mere investor. However, during an economy downturn, it becomes common that PEs are unable to manage the investments well, resulting a negative return from the portfolio. If the economy doesn’t improve in India further, the disputes between fund managers and foreign investors will be common," said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services Lp.
CDC Group Plc, a development finance institution wholly owned by the UK government, is an active investor in India-focused private equity funds. However, CDC had raised concerns over the lack of returns from its Indian investments.
Last year, CDC had reviewed the performance of investments in India following poor returns. “We are reviewing our entire South Asia portfolio, and India has been one of the worst performing ones," Alagappan Murugappan, managing director at CDC’s Asia Funds said in December last year. Till December last year, CDC had $800 million invested in India, which accounts for 19% of its portfolio.
In 2013, CDC’s Asia Fund made a $200-million commitment to IDFC Alternatives Ltd’s infrastructure fund. It made other allocation in India for funds such as Rabo Equity’s India Agri Business Fund and Renuka Ramnath’s Multiples Alternate Asset Management Pvt. Ltd.
Also, CDC has been actively investing directly in Indian firms for the last couple of years. It has direct investments in AuFinanciers (India) Pvt. Ltd, Ujjivan Financial Services Pvt. Ltd, Utkarsh Micro Finance Pvt. Ltd, Equitas Microfinance Ltd, Narayana Hrudayalaya Hospitals and Ratnakar Bank Ltd.
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