Rupee volatility cut Sterling value of our investments by 20%: Eredene Capital

The fund has already announced that it will not make any further investments in new projects

Eredene Capital Plc, an AIM-quoted investor in Indian infrastructure, has decided to conduct a strategic review of its investment in India given the drop in adverse foreign exchange movement and slowdown in the country. The fund said the volatility in the value of the Rupee has reduced the Sterling value of Eredene’s investments by almost 20 per cent. The fund had earlier announced it will not make any more investments in new projects.

In an update to the shareholders, Struan Robertson, chairman, Eredene Capital Plc said. “The company’s investments are denominated in Rupees and so this volatility has reduced the Sterling value of Eredene’s investments by almost 20 per cent. In addition, the growth rate of the India economy has fallen again to 4.4 per cent per annum for the quarter ending 30 June 2013,” said Robertson.

Since the company’s final results were announced on July 16, 2013, the Indian Rupee has weakened from Rs 89.6 versus the Pound to historic lows in excess of Rs 106.5 to the Pound in the first week of September 2013, he said.

Faced with 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, Robertson said. In addition, the company will seek to reduce costs as appropriate. The results of the strategic review are likely to be released in November along with the company’s interim results for the six-month period ending September 30, 2013, he said.

In July 2012, Eredene announced it 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 per cent in Rupee terms. Advisors have been appointed to handle the sale of 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 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 result, measures have been identified to reduce the ongoing operating costs by more than 50 per cent 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,  the company said.