RNS Number:7750B
Kubera Cross-Border Fund Limited
09 August 2007
Kubera Cross-Border Fund Limited
Interim Results for the period ended 30 June 2007
Kubera Cross-Border Fund Limited (LSE/AIM: KUBC), an investment company traded
on the AIM market of the London Stock Exchange has issued its maiden interim
results for the period ended 30 June 2007.
Highlights
- The Company was admitted to trading on AIM on 27 December 2006, raising
US$ 206 million by issue of 206,000,000 shares of US$ 0.01 at a price
US$ 1.00 each.
- During the period from 27 December 2006 to 30 June 2007, the Company
completed two investments, investing a total of US$ 36.5 million.
- Net asset value per share stood at US$ 0.977 as on 30 June 2007.
Electronic and printed copies of the interim report will be sent to shareholders
shortly. Copies of the report will be available, free of charge, from the
offices of Grant Thornton Corporate Finance, Grant Thornton House, Melton
Street, Euston Square, London NW1 2EP
For more information contact:
Kubera Partners, LLC (as the investment manager of Kubera Cross-Border Fund
Limited) Ramanan Raghavendran, Managing Partner
Tel: +1 212 (295) 2400
Grant Thornton Corporate Finance (Nominated Adviser)
Philip Secrett, Partner
Tel: +44 (0) 20 7383 5100
LCF Edmond de Rothschild Securities Limited (Broker)
Hiroshi Funaki
Tel no: +44 (0) 20 7845 5968
Chairman's Statement
Dear Shareholders:
I am pleased to present the first interim report of the Kubera Cross-Border Fund
Limited (the "Company") for the period ended 30 June 2007.
As outlined in the Admission Document for the Company when its shares were
admitted to trading on the AIM market of the London Stock Exchange on 27
December 2006, the Company, advised by Kubera Partners LLC, its investment
manager (the "Manager"), invests in businesses that operate in a cross-border
environment. These businesses primarily operate between the US and India,
although investments in other geographies may also form part of the Company's
portfolio if the Manager believes it can bring distinctive competence and value
to such investments.
Investments
The Manager has screened a large number of opportunities on behalf of the
Company over the course of the first half of 2007. During this period, the
Company completed two investments, in Kejriwal Stationery, the leading Indian
manufacturer of paper-based stationery products for the US market, and Adayana
Inc., an industry-leading US-based provider of e-learning and training services
that has a large technology development unit in Hyderabad, India. Each
investment amounted to US$20 million (including the 8.8% co-investment by
affiliates of the Manager), or an aggregate of US$40 million, for substantial
minority interests in both cases.
Indian environment
The favorable economic and regulatory changes of the last decade have created a
new generation of export-oriented Indian companies. Of particular note here is
the desire of many of these businesses to grow through Western acquisitions, as
evidenced by several substantial transactions announced in the last two years.
These businesses, and their management teams, view "intelligent" capital as a
critical component of their growth strategies, which plays to the Company's
strengths and focus.
The Indian environment for private equity investments, while undoubtedly
competitive, has worked in the Company's favor. The Manager's skill set, network
and experience in cross-border environments makes it, on behalf of the Company,
a partner of choice for export-oriented Indian companies. This has created a
strong investment pipeline for India-domiciled investments for the Company.
In India, we expect the Company to remain sector-agnostic provided there is an
export component to the investee company's plans. In addition, we expect to see
the Company's Indian portfolio consist largely of substantial minority holdings,
as control positions are rarely available.
US environment
In the US, the Company has moderated its investment pace to match the build-out
of the Manager's New York team. With a full team now in place, the Manager
expects both deal flow and transaction capability to rapidly reach that of the
Manager's Indian operation.
The Company is differentiated in the US market because of its focus on business
services and IT services (reflecting the experience of the Manager). However,
the Company has elected to decline several of the more prominent IT services and
outsourcing investment opportunities, primarily due to valuation concerns -
these concerns have largely been borne out by the stock market performance of
public companies in these sectors over the last six months, and we expect
opportunities to become more attractive in the coming months as valuations
continue to correct.
Public market investments
The Company has evaluated several potential investment opportunities in quoted
companies, in the US, the UK and India. The majority of these are so-called
PIPEs, which the Manager treats as it would any private equity opportunity. The
Company may, however, accumulate positions in public companies where a private
equity opportunity could take time to fructify or could benefit from a
pre-existing equity interest.
Financial Performance
The Company issued 206 million shares at US$1.00 each on 27 December 2006,
raising net proceeds of US$199.8 million. In accordance with US GAAP, all costs
relating to the issue of the shares were written off to the income statement. At
30 June 2007, the net asset value per share was US$0.977 and US$36.5 million had
been invested. Substantially all cash held pending investment in companies is
placed in low-risk money market instruments.
It is to be noted that potential follow-on investments in portfolio companies
are not specifically quantified, unless there is a contractual commitment to do
so. In the case of both Adayana and Kejriwal Stationery, we are actively
evaluating acquisitions that may give the Company the opportunity to invest
further capital. Our anticipation is that the Company may invest an additional
amount between 50% and 100% of the original investment if such acquisitions come
to fruition. The aggregate dollar amount invested to date should be evaluated in
this context.
Prospects and Shareholder Information
Given the experience and track record of the Manager's partners the Company
enjoys a competitive edge in the attractive cross-border niche in the
India-centric private equity environment. The Board is confident, given the
current pipeline of attractive investment opportunities as well as the Manager's
team now being fully operational, that the proceeds of the initial public
offering will be invested within 18 months from the date of Admission, subject
to standard holdbacks, in companies demonstrating attractive potential long-term
returns.
Information on existing and new investments, quarterly net asset values and
other material events relating to the Company are available through news
releases made to the London Stock Exchange available on
www.londonstockexchange.co.uk under ticker KUBC or through the Company's website
at www.kuberacrossborderfund.com.
Our thanks for your continued support.
Martin M. Adams
Chairman
Investment Manager's Report
Team
The Company and the Manager began effective operations at the time of the
admission of the Company to the AIM market of the London Stock Exchange on 27
December 2006. Since then, the Manager has been fully occupied in making the
Company's initial investments, and in building out its investment and support
teams in Mumbai and New York - a process that is now largely complete - and is
well positioned to meet the objectives laid out in the Company's Admission
Document.
The Manager has built an investment team combining strong private equity and
operational skill sets reflecting our strategy. Our professionals have several
years of experience with leading consulting, IT and private equity firms
including McKinsey and Company, AT Kearney, Cambridge Technology Partners and
Rhone Capital. We have also built a strong support team in Mumbai to assist with
our global operations, including finance, compliance, marketing and general
administration. Details on the Manager and biographies of team members can be
obtained at www.kuberapartners.com.
Macro environment
The two most important macro trends that affect the Company's investment thesis
- the growth in Indian GDP and the continued trend towards the offshoring of
services and manufacturing in Western economies - remain firmly in place. Indian
GDP growth was 9.1% during the first quarter of 2007, and the continued pressure
on cost and efficiency in Western economies has driven strong offshoring growth,
as evidenced by the strong performance of the leading India-oriented IT and
outsourcing companies. While we expect periodic political pressure in the West
as well as greater efficiency imposed by a strengthening rupee, the underlying
globalization thesis of the Company appears to be secure for the foreseeable
future. China continues to dominate lower-end manufacturing but India is making
impressive strides in products involving a significant design, engineering,
services or customer support component.
Investment environment and strategy
In both India and the US, we operate in a competitive private equity
environment. In India, for example, US$7.5 billion of private equity investments
were consummated during the course of 2006. In our specific target area of
cross-border businesses, our primary competition arises from global private
equity firms that have operations in both Western economies and India. We have
found that both in the US and in India, management teams are becoming
increasingly aware of the importance of a stable value-added capital partner.
Our exclusive focus on cross-border businesses, our integrated global approach,
our network, and our track record generate proprietary deal flow, even when
there is an intermediary involved or where there is competition. In both our
investments to date, Adayana (in the US) and Kejriwal Stationery (in India), we
were able to stop an intermediated process at an early stage and obtain superior
terms as a consequence of our focus and expertise. While there is no assurance
that this favorable environment will continue indefinitely, at this time we are
well-positioned to continue sourcing attractive investments.
Investment criteria and structure
In evaluating potential investments on behalf of the Company, we have created a
formal deal "escalation" process, with numerous checkpoints and investment
committee deliberations, to ensure that our work at all times supports the
investment thesis as well as the Company's mandate.
We seek to invest at least US$20 million (between the Company and the
co-investment by the Manager's affiliates) in any one investment round, but have
evaluated several exceptions to this criterion when we see unusual upside
potential, or believe there is a high likelihood of increasing our capital
commitment over time. We have also evaluated several investments where the
equity commitment would be in excess of US$40 million, which is the upper limit
of what is permissible for the Company - in such situations we engage
co-investors as appropriate. In selected cases, we may take passive positions in
listed companies where we see a potential path to a larger negotiated
transaction, and have also evaluated certain fund investments where we can
create a pass-through structure such that the Company's shareholders do not bear
any additional economic burden.
When evaluating opportunities, we give precedence to the quality of the
management team and the relationship we have formed with them. Given our
value-added approach, this element is critical as it drives their receptivity to
our advice and assistance. We conduct detailed diligence of the global market
opportunity prior to making any investment, in addition to standard legal,
accounting, operational and business diligence. Of course a detailed economic
model, allowing us to assess whether the investment generates base case returns
in our target range, is the foundation for a decision to proceed with an
investment.
Our investment structures for unlisted private companies are designed to
mitigate downside risk and provide strong governance. These also occasionally
have tangible economic value that equates to a lower effective valuation. We do
not typically disclose the details of our specific structures for numerous
reasons including protecting the underlying portfolio company in its day-to-day
business operations in competitive environments, but as a matter of policy we
generally seek a liquidity preference so as to greatly mitigate downside risk;
often have redemption rights at a defined point (usually five years), again to
mitigate downside risk; have several veto rights and governance provisions; have
standard minority economic rights where appropriate, including pre-emptive,
co-sale and tag-along rights; and typically take one or more seats on the
company's board of directors.
It goes without saying that all these elements cannot guarantee superior
returns, but we believe the probability of a favorable outcome is significantly
increased as a consequence.
Investments
During the period covered by this report, the Company completed two investments,
in Kejriwal Stationery, the leading Indian manufacturer of paper-based
stationery products for the US market, and Adayana Inc., an industry-leading
US-based provider of e-learning and training services that has a large
technology development unit in Hyderabad, India. In both cases the Company
obtained substantial minority interests in the underlying companies (in excess
of 25%), significant downside protection features, and strong governance rights
including board seats and several veto rights. We are engaged with both
companies in assisting with their growth strategies, primarily in the following
three areas: recruiting in the US and in India at a senior level, evaluating
follow-on acquisitions, and improving board reporting and governance.
Given the unlisted and recent nature of these investments, it is too early to
contemplate valuation changes. However, both companies continue to generate
strong results. Kejriwal Stationery is now the leading Indian exporter of
paper-based stationery products to the US, in less than three years; and Adayana
has shown strong growth in both the US and the Indian markets. We will keep you
informed as developments occur in our portfolio.
Pipeline
The strength of our investment pipeline, developed in a short period, has been a
source of satisfaction for us. We have developed a structured approach to
sourcing investments based on past experience. Components of our sourcing
strategy include: a systematic outreach program to intermediaries in both India
and the US; mining our individual networks; and a "top-down" sector research
effort in selected sectors that we believe are well-positioned for our
involvement. As a consequence, we have screened a large number of potential
investments, and expect this flow of opportunities to only get better.
We have been judicious in making investments and have brought stringent
discipline to evaluation and diligence. In three cases over the last six months,
we declined an investment opportunity well into the diligence stage as the facts
did not support the investment thesis. While it is disappointing to decline
investment opportunities at a late stage given our limited time and resources,
we do not intend to compromise in our approach.
Conclusion
We are pleased with the continued strength of our investment theses, our
existing investments, the quality of our investment pipeline, and the
composition of our team. We are confident that as our portfolio is built and
then matures, investors in the Company will obtain unique exposure to the export
side of the India story - India as a "factory to the world" for products and
services.
Kubera Partners LLC
Investment Manager
Investments
--------------------------------------------------------------------------------------------------------------
Adayana Inc. Kejriwal Stationery
--------------------------------------------------------------------------------------------------------------
Adayana is a learning services outsourcing company Kejriwal Stationery manufactures and distributes paper
that provides a range of technology-enabled learning related stationery products to customers predominantly
services to a focused set of vertical markets that in the US markets, using manufacturing operations in
include automotive services; defense; food, India. The Company also uses a cross-border model for
agriculture and life sciences; and training customer service, logistics, technology and design
outsourcing. innovation.
Adayana uses technology as an underlying enabler to The Company's adherence to global pricing norms, high
support the training needs of its clients. The company quality, and superior customer service has led to
effectively uses a cross-border business model, with strong performance in recent years.
sales, support, and other customer-facing functions in
the US and other markets supported by a strong
development organization in India.
An aggregate of US$20 million was invested, of which a
co-investment of 8.8% was provided by affiliates of
the Investment Manager.
An aggregate of US$20 million was invested, of which a
co-investment of 8.8% was provided by affiliates of
the Investment Manager.
--------------------------------------------------------------------------------------------------------------
Domicile US Domicile Singapore
--------------------------------------------------------------------------------------------------------------
Securities held Series A Participating Securities held Convertible Redeemable
Preferred Stock, Series B Preference Shares
Preferred Stock
--------------------------------------------------------------------------------------------------------------
Offices Minneapolis, US and Offices Mumbai, India and New
Hyderabad, India York, US
--------------------------------------------------------------------------------------------------------------
Sector Learning services Sector Stationery products
--------------------------------------------------------------------------------------------------------------
Website www.adayana.com Website www.kejriwalgroup.net
--------------------------------------------------------------------------------------------------------------
Acquisition date 26 June 2007 Acquisition date 3 April 2007
--------------------------------------------------------------------------------------------------------------
Purchase cost US$ 18,230,871 Purchase cost US$ 18,230,871
--------------------------------------------------------------------------------------------------------------
Book value US$ 18,230,871 Book value US$ 18,230,871
--------------------------------------------------------------------------------------------------------------
Change on cost % - Change on cost % -
--------------------------------------------------------------------------------------------------------------
Ownership Private Ownership Private
--------------------------------------------------------------------------------------------------------------
Balance Sheet (unaudited)
As at 30 June 2007
Notes US$
--------------------------------------------------------------------------------
Investments 3 36,474,762
Current Assets
Cash and Cash Equivalents 160,835,550
Accrued interest 4,110,676
-----------
164,946,226
Current Liabilities
Accrued expenses 120,378
-----------
120,378
Net Current Assets 164,825,848
Net Assets 201,300,610
-----------
Shareholders' Equity
Issued Capital 4 2,060,000
Share Premium 203,940,000
Accumulated losses (4,699,390)
201,300,610
-----------
Number of shares in issue 206,000,000
Net asset value per share 5 0.977
Statement of Income (unaudited)
For the period ended 30 June 2007
Notes US$
--------------------------------------------------------------------------------
Income
Investment Income 6 4,962,937
-----------
Total Income 4,962,937
Expenses 7
Organization and listing expenses 7,344,759
Investment management fee 1,995,615
Broker fee 20,092
Directors' fees 65,238
Professional fees 25,555
Insurance 200,101
Other expenses 10,967
----------
Total Expenses 9,662,327
Loss before tax (4,699,390)
Taxation 8 -
-----------
Net Loss (4,699,390)
-----------
Statement of Changes in Shareholders' Equity (unaudited)
For the period ended 30 June 2007
Issued Share Accumulated
Capital Premium Losses Total
US$ US$ US$ US$
----------------------------------------------------------------------------------------------------
Balance as at 23 Nov 2006
(incorporation date) - - - -
Issue of shares 2,060,000 203,940,000 - 206,000,000
Net loss for the period - - (4,699,390) (4,699,390)
--------------------------------------------------------------
Balance as at 30 June 2007 2,060,000 203,940,000 (4,699,390) 201,300,610
--------------------------------------------------------------
Statement of Cash Flows (unaudited)
For the period ended 30 June 2007
US$
-------------------------------------------------------------------------------
Cash flows from operating activities
Net loss for the period (4,699,390)
Adjustments for:
Increase in interest receivable (4,110,676)
Increase in accrued expenses 120,378
----------
Net cash used in operating activities (8,689,688)
Cash flows from investing activities
Purchase of investments (36,474,762)
-----------
Net cash used in investing activities (36,474,762)
Cash flows from financing activities
Issue of ordinary shares 2,060,000
Proceeds from share premium 203,940,000
-----------
Net cash provided by financing activities 206,000,000
Net increase in cash and cash equivalents 160,835,550
Cash and cash equivalents at the beginning of the period -
-----------
Cash and cash equivalents at the end of the period 160,835,550
-----------
Notes to the Financial Statements (unaudited)
For the period ended 30 June 2007
1. The Company
Kubera Cross-Border Fund Limited was incorporated on 23 November 2006 as a
closed-end, Cayman Islands company established to make investments in businesses
that leverage India-based resources for lower costs or greater access to talent.
The Company has appointed Kubera Partners LLC, (the 'Investment Manager') as its
investment manager. The Company focuses its investments on businesses that
serve, or seek to serve, customers in North American and European markets for
all or part of their activities. Investment targets for the Company include
Indian businesses that provide services to clients in developed country markets,
and US-based companies whose business model may benefit substantially from the
opportunity to utilize Indian outsourcing services
The registered office of the Company is PO Box 309GT, Ugland House, South Church
Street, George Town, Grand Cayman, Cayman Islands. The Company's shares were
admitted to trading on AIM, a market operated by the London Stock Exchange on 27
December 2006.
2. Summary of significant accounting policies
Basis of accounting
The financial statements expressed in US dollars have been prepared under the
historical cost convention and in conformity with US GAAP.
Cash and cash equivalents
Cash and cash equivalents of demand deposits and short-term, highly liquid
investments readily convertible to known amounts of cash and which are subject
to insignificant risk of change in value.
Interest income
Interest income is calculated on an accrual or, if applicable, effective yield
basis.
Valuation policy
The assets of the Company will be valued as follows:
* securities listed on a stock exchange or traded on any other regulated
market will be valued at the last closing price on such exchange or market
or, if no such price is available, at the mean of the bid and asked price
on such day. If there is no such price or such market price is not
representative of the fair market value of any such security, then the
security should be valued based on quotations readily available from
principle-to-principle markets, financial publications, or recognized
pricing services, or a good faith estimate of fair value should be made
in accordance with US GAAP, in consultation with the Investment Manager;
* if a security is listed on several stock exchanges or markets, the last
closing price on the stock exchange or market which constitutes the main
market for such security will be used;
* where the securities are not listed on any stock exchange, fair value
shall be estimated with reference to US GAAP;
* if a revaluation of an unlisted security of the Company is proposed by the
Investment Manager, it shall be accepted by the Company at its revised value
only upon unanimous approval of the independent Directors of the Board;
* cash or other liquid assets will be valued at their face value with
interest accrued to the end of the day;
* the value of accounts receivable, prepaid expenses and interest receivable
and dividend income receivable will be the full amount thereof less any
withholding tax unless the Board determines the value of the asset to be
less than that amount;
* values expressed in a currency other than US dollars will be translated
into US dollars at the average of the last available buying and
selling price for such currency; and
* for avoidance of doubt, all derivatives, forwards or other option contracts
on listed securities will be held at fair value. The Investment Manager may
use such probable realization value estimated with care and in good
faith by a competent professional appointed by the Investment Manager.
Foreign currency translations
The accounting records of the Company are maintained in US dollars. Foreign
currency translations during the year are translated at the exchange rates that
approximate those prevailing on transaction dates. Foreign currency monetary
assets and liabilities at the balance sheet date are translated into US dollars
at exchange rates that approximate those prevailing on that date. Exchange gains
and losses are calculated in income for the period.
3. Investments
Investments at value as at 30 June 2007:
Number of Shares Closing balance Gain / (loss)
US$ US$
Unlisted securities
Kubera Cross-Border Fund LP - 36,457,070 -
(the primary asset of which is its direct
investment in Adayana Inc. and its
indirect investment in Kejriwal Stationery
Holdings Limited through Kubera
Cross-Border Fund (Mauritius) Limited)
Kubera Cross-Border Fund (GP) Limited 200 17,692 -
(the primary asset of which is its
partnership interest in Kubera
Cross-Border Fund LP)
----------
Total 36,474,762 -
4. Share capital
Authorized:
1,000,000,000 ordinary shares of US$0.01 each US$10,000,000
Issued & allotted:
206,000,000 ordinary shares of US$0.01 each US$2,060,000
5. Net asset value per share
The net asset value per share is calculated based on the net assets attributable
to the shares as at 30 June 2007 of US$ 201,300,610 or US$ 0.977 per share.
6. Investment income
The amount of the investment income as of 30 June 2007 of US$ 4,962,937
comprises of interest income from deposits in bank and short-term, highly liquid
investments.
Interest US$ 161,592
Income on short-term investments - realized US$ 690,669
Income on short-term investments - unrealized US$ 4,110,676
-------------
Total US$ 4,962,937
7. Expenses
Investment management fee
Kubera Partners LLC, the Investment Manager, is entitled to receive an aggregate
annual fee from the Company payable quarterly in advance at the rate of 2% of
the net asset value of the Company.
Directors' fees
Each Director is paid a fee of #20,000 per annum and the Chairman is paid
#25,000 per annum, plus reimbursement for out-of-pocket expenses incurred in the
performance of their duties. Each of Messrs. Mahadeva and Raghavendran has
waived his Director's fees for so long as he is interested in the Investment
Manager.
8. Taxation
Under the laws of the Cayman Islands, the Company is not required to pay any tax
on profits, income, gains or appreciations and, in addition, no tax is to be
levied on profits, income, gains, or appreciations or which is in the nature of
estate duty or inheritance tax on the shares, debentures or other obligations of
the Company or by way of withholding in whole or part of a payment of dividend
or other distribution of income or capital by the Company to its members or a
payment of principal or interest or other sums due under a debenture or other
obligation of the Company.
9. Events after balance sheet date
There have been no material events since the balance sheet date.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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