TIDMKUBC
RNS Number : 9712J
Kubera Cross-Border Fund Limited
24 July 2013
24 July 2013
Kubera Cross-Border Fund Limited
Interim Results for the six-month period ended 30 June 2013
Kubera Cross-Border Fund Limited (the "Fund") (LSE/AIM: KUBC)
has issued its un-audited interim results for the six month period
1 January 2013 to 30 June 2013.
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, 30 Finsbury Square, London EC2P 2YU, and will be available
at the Fund's website www.kuberacrossborderfund.com.
About Kubera Cross-Border Fund Limited
Kubera Cross-Border Fund Limited is a closed-end investment
company incorporated in the Cayman Islands and traded on the AIM
market of the London Stock Exchange. The Fund makes private equity
investments in cross-border companies, primarily in businesses that
operate in the US-India corridor. The Fund's investment manager,
Kubera Partners, brings a strong track record of investing in or
managing such businesses. Several of the Fund's portfolio companies
also benefit from business activities in the growing Indian
domestic market. For further information on the Fund, please visit
www.kuberacrossborderfund.com.
For more information contact:
Kubera Partners, LLC (Investment Manager of Kubera Cross-Border
Fund Limited)
Ramanan Raghavendran, Managing Partner
Email: info@kuberapartners.com
Numis Securities Limited (Broker)
David Benda, Managing Director
Tel.: +44 (0) 20 7260 1275
Email: d.benda@numis.com
Grant Thornton Corporate Finance (Nominated Adviser)
Philip Secrett, Partner/ David Hignell, Manager/ Jamie Barklem,
Executive
Tel.: +44 (0) 20 7383 5100
Email: philip.j.secrett@uk.gt.com
IOMA Fund and Investment Management Limited (Administrator,
Registrar & Secretary)
Philip Scales, Director
Tel.: +44 (0) 1624 681250
Email: Philips@iomagroup.co.im
Disclaimer:
This announcement may contain certain forward-looking statements
with respect to the financial condition, results of operations and
business of the Fund and its portfolio companies. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the Fund or its
portfolio companies' actual performance to be materially different
from any future performance expressed or implied by such
forward-looking statements. Such forward-looking statements are
based on assumptions regarding the Fund and its portfolio companies
present and future business strategies and the political and
economic environment in which they operate. Reliance should not be
placed on these forward-looking statements, which reflect the view
of Kubera Partners, LLC as of the date of this release only.
CHAIRMAN'S STATEMENT
On behalf of the Board of Directors, I am pleased to present the
interim report and financial statements of Kubera Cross-Border Fund
Limited (the "Fund" or "Company"), for the six month period ended
30 June 2013.
Distributions
The Board announced on 10 June 2013, a distribution of capital
of US$ 3,292,029, pro rata to all shareholders. The distribution
consisted of a payment of US$ 0.03 per ordinary share ("share")
paid in cash from the Fund's share premium account on 24 June 2013.
Taken together with prior distributions of US$ 0.28 per share in
October 2010 and US$ 0.02 per share in July 2012, the Fund has thus
far distributed US$ 0.33 per share.
NAV and Discount
The value of the Fund's net assets decreased from US$ 90.4
million to US$ 75.9 million during the six month period, which
ended on 30 June 2013. The Fund's net asset value ("NAV") per share
decreased by 16% from US$ 0.82 to US$ 0.69 between 31 December 2012
(audited) and 30 June 2013 (un-audited). The decrease in NAV is
primarily attributable to the capital distribution, the
depreciation of Indian Rupee vis-à-vis the US Dollar, which is the
denomination of the Fund, and a decrease in public equity market
valuations, which are an input taken into account in establishing
the value of equity interests in the Fund's portfolio which are
publicly traded securities.
The Fund's share price decreased by 2% from US$ 0.49 as at 31
December 2012 to US$ 0.48 as at 28 June 2013. The discount of the
Fund's share price to NAV decreased from 40% as at 31 December 2012
to 31% as at 28 June 2013.
EGM
At the Extraordinary General Meeting of the Company held on 17
January 2013, shareholders passed an ordinary resolution regarding
the future of the Company, resolving that (a) the Fund should not
continue in existence as presently constituted; and (b) the
investment objective and policy of the Fund be changed to seek
realisation of its portfolio of investments in the ordinary course
of business and to return the net proceeds of all such realisations
to Shareholders, following which, the Company will be wound-up. The
Fund will make no new investments, except follow-on investments in
existing investee companies.
This change in investment objective and policy will not result
in an immediate or accelerated sale of the Fund's portfolio of
investments. Investments will only be realised when, in the opinion
of the investment manager, Kubera Partners LLC (the "Manager"),
appropriate opportunities are presented. Given the co-investment
made by members of the Manager alongside the Fund in each of the
Fund's investments, the Manager's interests are aligned with
shareholders.
On behalf of the Board of Directors, I would like to thank
shareholders for their continued support regarding the future
direction of the Company.
On 17 January 2013, the Company also announced the resignations
of Michel Casselman, Pravin Gandhi and Kumar Mahadeva from the
Board. I also wish to express the Board's sincere thanks to Michel,
Pravin and Kumar for their invaluable advice and assistance as
board members during their tenure.
Portfolio Valuations
The Fund's financial statements are prepared in accordance with
US GAAP. The valuations of investments are reviewed and approved by
the Audit Committee of the Board on a quarterly basis. All
investments are recorded at estimated fair value, in accordance
with SFAS 157 that defines and establishes a framework for
measuring fair value. The NAV is calculated on this basis. The
methodology underlying the Fund's investment valuations is
consistent with previous periods.
Change of Administrator and Amendment to Investment Management
Agreement
On 10 June 2013, the Fund announced that it had appointed IOMA
Fund and Investment Management Limited ("IOMA") as administrator,
registrar and company secretary. IOMA will work closely with Cim
Fund Services Ltd in Mauritius, which will continue as
administrator and secretary of Kubera Cross-Border Fund (Mauritius)
Limited, a subsidiary of the Fund, and will continue to assist in
providing administrative services to the Fund and its other
subsidiaries.
The Fund has also amended the terms of the investment management
agreement entered into with the Manager, reducing the investment
management fees payable to the Manager by the amount of the
administration fees payable to IOMA.
Closing Remarks
Further detailed information on investments, quarterly NAVs and
other material events relating to the Fund are available through
news releases made to the London Stock Exchange available on
www.londonstockexchange.co.uk under ticker KUBC, through the Fund's
website at www.kuberacrossborderfund.comand in the Manager's
quarterly newsletter.
Martin M. Adams
Chairman
INVESTMENT MANAGER'S REPORT
Indian Economy and Market Review([1])
India's annualised economic growth during the last quarter of
the Financial Year ('FY') 2012-13 stood at 4.8%, a marginal
improvement over the corresponding previous quarter growth of 4.7%.
However, growth fell considerably compared to 5.1% in the same
quarter last year. Over the past year, global economic activity has
slowed down and risks remain elevated due to sluggish external
demand, the uncertain political situation, significant Rupee
depreciation, high interest rates and lack of significant fresh
long term non-portfolio capital investment into India. However
headline wholesale price index inflation eased during May 2013 to
4.7%, lower than an average of 7.4% during FY 2012-13.
Foreign direct investment inflows during the period of January
2013 to March 2013 fell by 6% to US$ 5.5 billion compared to US$
5.8 billion in the same period of 2012. Foreign Institutional
Investors ('FIIs') are increasingly adopting a "risk adverse"
attitude to emerging markets. As a consequence, FIIs have been
selling across markets and withdrawing money from India (primarily
in the debt segment) and other emerging markets. For the period
January 2013 to June 2013, Indian equity markets witnessed a net
inflow of US$ 13.5 billion, whereas Indian debt markets saw a net
outflow of US$ 1.2 billion in Indian markets.
In order to attract further foreign capital in the country, the
Reserve Bank of India enhanced the ceiling for investments by FII
in government securities and corporate bonds by $5 billion each.
The combined cap on domestic debt now stands at $81 billion.
The BSE Sensex (which comprises 30 stocks) decreased marginally
during January to June 2013, falling by 1% and ending at
19,396points during the period. During the same period the mid-cap
index (NIFTY Midcap) fell drastically by 21%.
The most significant development has been the movement in the
exchange rate. The Rupee depreciated by 9% against the US dollar
during the first half of calendar year 2013. This is primarily due
to sell-offs by foreign institutional investors.
Portfolio
The Investment Manager remains closely engaged with the Fund's
portfolio companies on a range of strategic issues. Details on the
Fund's portfolio companies' performances follow.
Kubera Partners LLC
Investment Manager
KUBERA CROSS-BORDER FUND LIMITED
Consolidated statement of assets and
liabilities
as at 30 June 2013
(Stated in United States Dollars)
Notes 30 June 2013 30 June 2012
(unaudited) (unaudited)
Assets
Investments in securities, at
fair value 2(c) 71,430,118 95,373,978
Loans to portfolio companies 2(d),11 5,171,566 5,171,566
Cash and cash equivalents 2(g),6 6,426,219 6,977,174
Interest and dividend receivable 2(d),2(k) - 128,283
Prepaid expenses 77,156 73,788
----------------------------------- ---------- -------------- --------------
Total assets 83,105,059 107,724,789
Liabilities
Accounts payable 370,258 287,577
Tax liability (net) 2(i),8 - -
----------------------------------- ---------- -------------- --------------
Total liabilities 370,258 287,577
Net assets 82,734,801 107,437,212
------------------------------------ ---------- -------------- --------------
Analysis of net assets
Capital and reserves
Share capital 7 1,097,344 1,097,344
Additional paid-in capital 7 111,886,394 117,373,109
Accumulated deficit (36,985,561) (19,926,979)
----------------------------------- ---------- -------------- --------------
75,998,177 98,543,474
Non-controlling interest 9 6,736,624 8,893,738
------------------------------------ ---------- -------------- --------------
6,736,624 8,893,738
Total shareholders' interests 82,734,801 107,437,212
------------------------------------ ---------- -------------- --------------
KUBERA CROSS-BORDER FUND LIMITED
Consolidated schedule of investments
as at 30 June 2013
(Stated in United States Dollars) 30 June 2013 30 June 2012
(unaudited) (unaudited)
------------------------------------------------ ------------------------------------------------
Name of the Industry Country Instrument Number Cost Fair value % of Number Cost Fair value % of
Entity of shares net of shares net
assets assets
Investments in securities (other than warrants)
Investment
NeoPath holding
Limited company Mauritius Equity shares 18,284,615 - 100,000 0.12% 18,284,615 - 100,000 0.09%
Preferred
shares 9,643,610 - 5,670,860 6.85% 18,540,679 - 16,574,127 15.43%
------------ ----------- -------
- 5,770,860 6.97% - 16,674,127 15.52%
------------ ----------- ------- ------------ ----------- -------
Series A
(2007)
United convertible
States participating
Adayana, of preferred
Inc. Education America stock 3,750,000 15,000,000 1,539,540 1.86% 3,750,000 15,000,000 17,124,197 15.94%
Series B
(2007) convertible
preferred
stock 1,250,000 5,000,000 7,310,265 8.84% 1,250,000 5,000,000 7,310,265 6.80%
Common stock 16,667 50,001 - 0.00% 16,667 50,001 9,441 0.01%
------- ------------ ----------- -------
20,050,001 8,849,805 10.70% 20,050,001 24,443,903 22.75%
------------ ----------- ------- ------------ ----------- -------
Compulsorily
Essel Shyam convertible
Communication preference
Limited Media services India shares 5,555,056 12,208,914 25,143,416 30.39% 5,555,056 12,208,914 19,167,632 17.84%
Equity shares 1,125,315 2,473,220 5,093,425 6.16% 1,125,315 2,473,220 3,882,881 3.61%
------------ ------------ ----------- -------
14,682,134 30,236,841 36.55% 14,682,134 23,050,513 21.45%
------------ ----------- ------- ------------ ----------- -------
Ocimum Compulsorily
Biosolutions convertible
(India) preference
Limited Life sciences India shares 3,818,162 14,000,000 99,974 0.12% 3,818,162 14,000,000 99,974 0.09%
Equity shares 1,000 3,667 26 0.00% 1,000 3,667 26 0.00%
------------ ----------- -------
14,003,667 100,000 0.12% 14,003,667 100,000 0.09%
------------ ----------- ------- ------------ ----------- -------
Convertible
Greenearth redeemable
Education Stationery preference
Limited products Singapore shares 455,172 20,000,000 1 0.00% 455,172 20,000,000 2,269,672 2.11%
------------ ----------- ------------ ----------- -------
20,000,000 1 0.00% 20,000,000 2,269,672 2.11%
------------ ----------- ------- ------------ ----------- -------
Compulsorily
convertible
Synergies cumulative
Castings Automotive preference
Limited components India shares 5,333,334 10,000,000 8,225,824 9.94% 5,333,334 10,000,000 8,845,885 8.23%
Equity shares 10,543,614 16,333,556 16,261,857 19.66% 10,543,614 16,333,556 17,487,671 16.28%
------------ ----------- -------
26,333,556 24,487,681 29.60% 26,333,556 26,333,556 24.51%
------------ ----------- ------- ------------ ----------- -------
Spark Capital
Advisors
(India)
Private Financial
Limited services India Equity shares 55,079 1,500,000 1,500,000 1.81% 55,079 1,500,000 1,587,233 1.48%
------------ ----------- -------
1,500,000 1,500,000 1. 81% 1,500,000 1,587,233 1.48%
------------ ----------- ------- ------------ ----------- -------
GSS Infotech IT
Limited infrastructure India Equity shares 1,000,000 10,225,274 484,930 0.59% 1,000,000 10,225,274 914,974 0.85%
------------ ----------- ------------ ----------- -------
10,225,274 484,930 0.59% 10,225,274 914,974 0.85%
------------ ----------- ------- ------------ ----------- -------
Total investments in securities 106,794,632 71,430,118 86.34% 106,794,632 95,373,978 88.76%
------------ ----------- ------- ------------ ----------- -------
The accompanying notes form an integral part of these consolidated financial statements.
KUBERA CROSS-BORDER FUND LIMITED
Consolidated statement of operations
for the six month period ended 30 June 2013
(Stated in United States Dollars)
---------------------------------------------- ------------------ ------------------- --------------------------
Six months Six months
Notes ended ended
30 June 2013 30 June 2012
(unaudited) (unaudited)
--- ----------------------------------------- ------------------ ------------------- --------------------------
Investment income
Interest 2(d),2(k),12 61,465 179,280
61,465 179,280
Expenses
Investment management fee 2(m),3 998,540 1,021,735
Carried interest 2(n),3 - -
Professional fees 80,694 81,138
Insurance 51,213 49,375
Directors' fees 5 42,463 69,860
Administration fees 30,483 18,250
License fees 8,463 10,077
Custodian fees 13,197 11,313
Brokerage 37,500 37,500
Corporate Tax - 48,282
Other expenses 79,742 19,089
--------------------------------------------- ------------------ ------------------- --------------------------
1,342,295 1,366,619
Net investment loss before tax (1,280,830) (1,187,339)
Taxation 2(i),8 - -
--- ----------------------------------------- ------------------ ------------------- --------------------------
Net investment loss after tax (1,280,830) (1,187,339)
Realized and unrealized gain /(loss) on
investment transactions
Realized gain on investment
in securities 2(c) 5,376,687 -
Net unrealized loss on investments
in securities 2(c) (16,108,576) (3,022,864)
--------------------------------------------- ------------------ ------------------- --------------------------
(10,731,889) (3,022,864)
Net decrease in net assets resulting from
operations (12,012,719) (4,210,203)
------------------------------------------------------------------ ------------------- --------------------------
Non-controlling interest (950,589) (262,966)
Equity holding of parent (11,062,130) (3,947,237)
(12,012,719) (4,210,203)
--------------------------------------------- ------------------ ------------------- --------------------------
The accompanying notes form an integral part of these consolidated
financial statements.
KUBERA CROSS-BORDER FUND LIMITED
Consolidated statement of changes in net assets
as at 30 June 2013
(Stated in United States
Dollars)
------------------------- ---------- -------------- --------------- --- -------------------- ----------------
Share Additional Accumulated Non-controlling Total
capital paid-in deficit interest
capital
------------------------- ---------- -------------- --------------- --- -------------------- ----------------
As at 1 January 2012 1,097,344 117,373,109 (15,979,742) 9,156,704 111,647,415
Net decrease in net
assets
resulting from
operations - - (3,947,237) (262,966) (4,210,203)
------------------------- ---------- -------------- --------------- --- -------------------- ----------------
As at 30 June 2012 1,097,344 117,373,109 (19,926,979) 8,893,738 107,437,212
------------------------- ---------- -------------- --------------- --- -------------------- ----------------
As at 1 January 2013 1,097,344 115,178,423 (25,923,431) 8,180,158 98,532,494
Capital Distribution - (3,292,029) - (492,945) (3,784,974)
Net decrease in net
assets
resulting from
operations - - (11,062,130) (950,589) (12,012,719)
------------------------- ---------- -------------- --------------- --- -------------------- ----------------
As at 30 June 2013 1,097,344 111,886,394 (36,985,561) 6,736,624 82,734,801
------------------------- ---------- -------------- --------------- --- -------------------- ----------------
The accompanying notes form an integral part of these consolidated
financial statements.
KUBERA CROSS-BORDER FUND LIMITED
Consolidated statement of cash flows
for the six month period ended 30 June 2013
(Stated in United States Dollars)
-----------------------------------------------------------------------
Six months Six months
ended ended
30 June 30 June
2013 2012
------------------------------------------------------- ------------- ------------
Cash flow from operating activities
Net decrease in net assets resulting from operations (12,012,719) (4,210,203)
Adjustments to reconcile net (decrease) / increase
in net assets resulting
from operations to net (cash used) in / generated
from operating activities:
Net unrealized loss on investments in securities 16,108,576 3,022,864
Realized gain on investment in securities (5,376,687) -
Purchase of investment in securities (236,892) -
Proceeds from sale of investment in securities 5,613,579 -
Repayment of loans - 25,000
Change in operating assets and liabilities:
Decrease / (Increase) in other assets (59,454) (120,362)
(Decrease) / Increase in current liabilities (87,222) (122,335)
------------------------------------------------------- ------------- ------------
3,949,181 (1,405,036)
Cash flow from financing activities
Capital distribution to non-controlling interest (492,945) -
shareholders
Capital distribution (3,292,029) -
------------------------------------------------------- ------------- ------------
(3,784,974) -
Net change in cash and cash equivalents during the
year 164,207 (1,405,036)
Cash and cash equivalents at beginning of year 6,262,012 8,382,210
Cash and cash equivalents at end of year 6,426,219 6,977,174
-------------------------------------------------------- ------------- ------------
The accompanying notes form an integral part of these consolidated
financial statements.
KUBERA CROSS-BORDER FUND LIMITED
Notes to the consolidated financial statements
for the six month period ended 30 June 2013
(Stated in United States Dollars)
1. Organization and principal activity
Kubera Cross-Border Fund Limited (the "Fund") was incorporated
in the Cayman Islands on 23 November 2006 as an exempted company
with limited liability.
The Fund is a closed-end investment company trading on AIM
market of the London Stock Exchange. The Fund makes private equity
investments in cross-border companies, primarily in businesses that
operate in the US-India corridor. The Fund is managed by Kubera
Partners, LLC (the "Investment Manager"), a Delaware limited
liability company. The Investment Manager is responsible for the
day-to-day management of the Fund's investment portfolio in
accordance with the Fund's investment objective and policies and
has full discretionary investment management authority.
The Fund is a Limited Partner in Kubera Cross-Border Fund LP
(the "Partnership"), an exempted limited partnership formed on 28
November 2006, in accordance with the laws of the Cayman Islands.
The primary business of the Partnership is to invest in, purchase
and sell investments for the purpose of carrying out an investment
strategy that is consistent with the strategy described in the
Admission Document and Offering Memorandum of the Fund.
Kubera Cross-Border Fund (GP) Limited, a company incorporated
under the laws of the Cayman Islands and a wholly owned subsidiary
of the Fund, serves as the General Partner of the Partnership.
The Partnership holds 100% ownership in Kubera Cross-Border Fund
(Mauritius) Limited ("Kubera Mauritius"), a company incorporated in
Mauritius. The primary business of Kubera Mauritius is to carry on
business as an investment holding company. Kubera Mauritius holds
100% ownership in New Wave Holdings Limited, a company incorporated
in Mauritius. The primary business of New Wave Holdings Limited is
to carry on business as an investment holding company.
Cim Fund Services Ltd. was the Administrator for the period 1
January 2013 to 14 May 2013. With effect from 15 May 2013, Fund
appointed IOMA Fund and Investment Management Limited ('IOMA') as
the Administrator of the Fund. IOMA will work closely with Cim Fund
Services Ltd in Mauritius, who will continue as Administrator and
Secretary of Kubera Mauritius, and will continue to assist in
providing administrative services to the Fund and its other
subsidiaries.
2. Significant accounting policies
The significant accounting policies are as follows:
a. Basis of preparation
The consolidated financial statements are prepared in conformity
with accounting principles generally accepted in the United States
of America (US GAAP). US GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, the consolidated
results of operations during the reporting period and the reported
consolidated amounts of increases and decreases in net assets from
operations during the reporting period. Significant estimates and
assumptions are used for, but not limited to, accounting for the
fair values of investments in portfolio companies. Management
believes that the estimates made in the preparation of the
consolidated financial statements are prudent and reasonable.
Actual results could differ from those estimates. Changes in
estimates are reflected in the financial statements in the period
in which the changes are made and if material, these effects are
disclosed in the notes to the consolidated financial
statements.
The measurement and presentation currency of the consolidated
financial statements is the United States dollar rather than the
local currency of the Cayman Islands reflecting the fact that
subscriptions to and redemptions from the Fund are made in United
States dollars and the Fund's operations are primarily conducted in
United States dollars.
b. Basis of consolidation
The consolidated financial statements include the accounts of
the Fund and its wholly owned subsidiary, Kubera Cross-Border Fund
(GP) Limited and its majority owned subsidiaries, Kubera
Cross-Border Fund LP, Kubera Cross-Border Fund (Mauritius) Limited
and New Wave Holdings Limited (together referred to as the
'Group'). All material inter-company balances and transactions have
been eliminated.
c. Valuation and security transactions
Definition and hierarchy
Securities are held in custody by Kotak Mahindra Bank Limited
and Hong Kong & Shanghai Banking Corporation Limited. Security
transactions are recorded on the trade date basis. The Group uses
the weighted average cost method to determine the realized gain or
loss on sale of investments.
Investments are recorded at estimated fair value as at the
balance sheet date. The Group follows ASC 820 "Fair Value
Measurements and Disclosures" which defines fair value, establishes
a framework for measuring fair value and expands disclosures about
fair value measurements.
Fair value of an investment is the amount that would be received
to sell the investment in an orderly transaction between market
participants at the measurement date (i.e. the exit price).
ASC 820 establishes a hierarchical disclosure framework which
prioritizes and ranks the level of market price observability used
in measuring investments at fair value. Market price observability
is impacted by a number of factors, including the type of
investment and the characteristics specific to the investment.
Investments with readily available active quoted prices or for
which fair value can be measured from actively quoted prices
generally will have a higher degree of market price observability
and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified
and disclosed in one of the following categories:
Level I - Quoted prices are available in active markets for
identical investments as of the reporting date. The type of
investments included in Level I are publicly traded equity
securities and are valued at the last closing price on a national
securities exchange on the valuation date. As required by ASC 820,
the Group does not adjust the quoted price for these investments
even in situations, if any, where the Group holds a large position
and a sale could reasonably impact the quoted price.
Level II - Pricing inputs are other than quoted prices in active
markets, which are either directly or indirectly observable as of
the reporting date, are valued at prices for similar assets or
liabilities in markets that are not active, or determined through
the use of models or other valuation methodologies. Investments
which are generally included in this category are publicly traded
equity securities with restrictions and derivative contracts.
Level III - Pricing inputs are unobservable and include
situations where there is little, if any, market activity for the
investment. Fair value for these investments is determined using
valuation methodologies that consider a range of factors, including
but not limited to the price at which the investment was acquired,
the nature of the investment, local market conditions, trading
values on public exchanges for comparable securities, current and
projected operating performance and financing transactions
subsequent to the acquisition of the investment. The inputs into
the determination of fair value require significant management
judgment. Due to the inherent uncertainty of these estimates, these
fair value estimates may differ materially from the values that
would have been used had a ready market for these investments
existed. Investments that are included in this category generally
are privately held debt and equity securities.
In certain cases, the inputs used to measure fair value may fall
into different levels of the fair value hierarchy. In such cases,
an investment's level within the fair value hierarchy is based on
the lowest level of input that is significant to the fair value
measurement. The Investment Manager's assessment of the
significance of a particular input to the fair value measurement in
its entirety requires judgment, and considers factors specific to
the investment.
Valuation
Group's valuation policy
Securities listed on a stock exchange or traded on any other
regulated market are 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 is 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 is made in accordance with US
GAAP.
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 is used.
A discount from values of actively traded securities is taken
for holdings of securities when there is a formal restriction that
limits sale of the securities. Discounts for restricted equity
securities from their market price ranges from 0% to 30%. When
determining a discount to actively traded restricted securities,
factors taken into consideration include the investee company's
trading characteristics, the Group's ability to sell its position
when the restriction expires, and the term of the restriction. The
adjustment of the discount depends on the duration of the
restriction.
In the event that a listed security has no such price or the
market price is not representative of the fair market value, the
security has limited marketability, or the security is unlisted,
its fair value is determined by the Investment Manager, taking into
account forward market comparable multiples, trailing market
comparable multiples, transaction multiples, and discounted cash
flow models. Inputs include trading values on public exchanges for
comparable securities, historic, current and projected operating
performance, and financing transactions subsequent to the
acquisition of the investment. An appropriate discount is taken for
holdings in securities where there is a risk associated with a lack
of liquidity or marketability. A revaluation of these securities is
accepted by the Group only upon majority approval of the
independent directors of the Fund.
Valuation process
The Group establishes valuation processes and procedures to
ensure that the valuation techniques for investments that are
categorized within Level III of the fair value hierarchy are fair,
consistent, and verifiable. The Fund designates the Investment
Manager to oversee the entire valuation process of the Group's
Level III investments.
The Investment Manager is responsible for reviewing the Group's
written valuation processes and procedures, conducting periodic
reviews of the valuation policies, and evaluating the overall
fairness and consistent application of the valuation policies.
Valuations determined by the Investment Manager are required to
be supported by market data, third-party pricing sources; industry
accepted pricing models, or other methods the Investment Manager
deems to be appropriate, including the use of internal proprietary
pricing models.
The following table summarizes the valuation of the Group's
investments based on ASC 820 fair value hierarchy levels as of 30
June 2013.
Total Level I Level II Level III
Investments in securities 71,430,118 484,930 - 70,945,188
Total 71,430,118 484,930 - 70,945,188
The changes in the investments classified as Level III are as
follows:
Balance at 1 January 2013 86,842,269
Purchases during the six month period ended 30
June 2013 236,892
Sale proceeds received during the six month period
ended 30 June 2013 (5,613,759)
Transfers in (out of) Level III -
Realized gains for six month period ended 30
June 2013 5,376,867
Unrealized losses for six month period ended
30 June 2013 (15,897,081)
Balance at 30 June 2013 70,945,188
Unrealized losses included in earnings relating
to investments held at 30 June 2013 15,897,081
---------------------------------------------------- -------------
The following table summarizes the valuation of the Group's
investments based on the above ASC 820 fair value hierarchy levels
as of 30 June 2012.
Total Level I Level II Level III
Investments in securities 95,373,978 914,974 - 94,459,004
Total 95,373,978 914,974 - 94,459,004
The changes in the investments classified as Level III are as
follows:
Balance at 1 January 2012 97,592,169
Purchases during the six month period ended 30 -
June 2012
Sale proceeds received during the six month period -
ended 30 June 2012
Transfers in (out of) Level III -
Realized gains for six month period ended 30 June -
2012
Unrealized losses for six month period ended 30
June 2012 (3,133,165)
Balance at 30 June 2012 94,459,004
Unrealized losses included in earnings relating
to investments held at 30 June 2012 3,133,165
---------------------------------------------------- ------------
Total realized and unrealized gains and losses, if any, recorded
for the Level III investment is reported in net realized gain
(loss) on investments in securities and net change in unrealized
gain (loss) on investments in securities respectively, in the
statement of operations.
Gains and losses from investments, including those that result
from foreign currency changes, are recorded in the consolidated
statement of operations under net realized gains and losses on
investments and net change in unrealized gains and losses on
investments.
Unquoted warrants have been recorded at fair value. Changes in
fair value are reported in net change in unrealized gain (loss) on
investments in securities, in the consolidated statement of
operations.
Unquoted warrants are derivative instruments which do not have
an active quoted market price. The fair value of the warrants is
estimated, using the Black-Scholes model, taking into account the
terms and conditions upon which the warrants were granted.
d. Loans, loans impairment and interest income recognition
Loans are reported at their outstanding principal balances net
of impairment. The portfolio consist of loans provided to
subsidiaries of portfolio companies and bear interest at a market
rate based on the borrower's credit quality, the term and face
value of the loans. Interest is recognized over the life of the
loans at the loan's effective rate of interest. The Group may
require collateral for the loans. The Group has not and does not
intend to sell these loans receivable. Net change in loans
receivable are included in net cash provided by operating
activities in the consolidated statement of cash flows. The
allowance for doubtful loans account is the Group's best estimate
of the amount of credit losses from the Group's loans. The
allowance is determined on an individual loan basis if it is
probable that the Group will not collect all principal and interest
contractually due. The Group considers borrowers' historical
payment patterns, borrowers' credit ratings as published by credit
rating agencies, if available, borrowers' business performance and
general and industry specific economic factors in determining the
borrowers' probability of default.
As per Para 310-10-35-22 of ASC 310 on "Receivables", the
impairment is measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate
or the fair value of the collateral if the loan is
collateral-dependent. The Group does not accrue interest when a
loan is considered impaired. When ultimate collectability of the
principal balance of the impaired loan is in doubt, all cash
receipts on impaired loans are applied to reduce the principal
amount of such loans until the principal has been recovered and are
recognized as interest income thereafter. Impairment losses are
charged against the allowance and increases in the allowance are
charged to impairment loss in statement of operations. Loans are
written off against the impairment allowance when all possible
means of collection have been exhausted and the potential for
recovery is considered remote. The Group resumes accrual of
interest when it is probable that the Group will collect the
remaining principal and interest of an impaired loan. Loans become
past due based on how recently payments have been received.
e. Foreign currency translation
The Group's accounting records are maintained in U.S. dollars as
follows: (1) the foreign currency market value of investments and
other assets and liabilities denominated in foreign currency are
translated at the prevailing exchange rate at the end of the
period; and (2) purchases and sales, income and expenses are
translated at the prevailing exchange rate on the respective date
of such transactions. The resulting net foreign currency gain
(loss) is included in the consolidated statement of operations.
The Group does not generally segregate the portion of the
results of operations arising as a result of changes in the foreign
currency exchange rates from the fluctuations arising from changes
in the market prices of securities. Accordingly, such foreign
currency gain (loss) is included in net realized and unrealized
gain (loss) on investments.
f. Buy back
The Group repurchases its shares by allocating the excess of
repurchase price over par value against additional paid-in
capital.
g. Cash and cash equivalents
Cash and cash equivalents represent amounts held with the Group
bank accounts and deposits held with banks having original maturity
for a period of less than or equal to three months.
h. Related parties
Parties are considered to be related if one party has the
ability, directly or indirectly, to control the other party or
exercise significant influence over the other party in making
financial and operating decisions.
i. Income taxes
The current charge for income taxes is calculated in accordance
with the relevant tax regulations applicable to the Group. Deferred
tax assets and liabilities are recognized for future tax
consequences attributable to temporary differences between the
consolidated financial statements carrying amount of existing
assets and liabilities and their respective tax bases and operating
loss carry forwards. Deferred tax assets and liabilities are
measured using prevailing tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
the consolidated statement of operations in the period that
includes the enactment date. The measurement of deferred tax assets
is reduced, if necessary, by a valuation allowance for any tax
benefits of which future realization is not more likely than
not.
j. Expenses
The Group bears its own expenses on an accrual basis including,
but not limited to organizational costs, brokerage, custody, legal,
accounting, audit and other operating and administrative
expenses.
k. Revenue recognition
Dividend is accounted when the right to receive the dividend is
established. Interest is recorded on a period proportionate
basis.
l. Fair value of financial instruments other than investment in securities
The Group's investments are accounted as described in Note 2(c).
The Group's financial instruments include other current assets,
accounts payable and accrued expenses, which are realizable or to
be settled within a short period of time. The carrying amounts of
these financial instruments approximate their fair values.
m. Investment management fees
The Investment Manager is entitled to receive an aggregate
investment management fee of two per cent per annum of the Fund's
net asset value, to be paid quarterly in advance based on the
published net asset value of the Fund of the previous quarter or an
amount which is agreed by the Board of Directors of the Fund.
n. Carried interest
Under the terms of the Partnership Agreement, Kubera
Cross-Border Incentives SPC - Carried Interest SP, the Special
Limited Partner of the Partnership is entitled to receive a carried
interest from the Partnership equivalent to 20 per cent, of the
aggregate return over investment received by the Partnership
following the full or partial cash realization of an
investment.
The payment of the carried interest is conditional upon the last
announced net asset value of the Fund prior to the date of a
distribution as adjusted by adding back the value of any income or
capital distributions made by the Fund to its shareholders, being
equal to or greater than the Par Value. In addition, the carried
interest payment is adjusted, up or down, by such amount as is
required to achieve the position that, following such distribution,
the aggregate cumulative amount of carried interest paid at the
date of such distribution will equal 20 per cent, of the eligible
carried interest proceeds (being the net realized gains of the
Partnership to the date of such distribution reduced by the net
unrealized losses). Eligible carried interest proceeds may not be
less than zero.
3. Investment management fees and carried interest
Management fees
On 17 January 2013 and subsequently on 7 June 2013, the Board of
Directors of the Company fixed the management fees for the years
2013 to 2015. Subject to Clause A below, the Company shall pay a
management fee to the Manager which shall be:
(a) US$1,997,079 for the period from 1 January 2013 to 31
December 2013 less the administration fee payable to IOMA for such
period;
(b) US$1,997,079 for the period from 1 January 2014 to 31
December 2014 less the administration fee payable to IOMA for such
period; and
(c) US$1,697,515 for the period from 1 January 2015 to 31
December 2015 less the administration fee payable to IOMA for such
period,
to be paid quarterly in advance.
Clause A:
If, at any time prior to 31 December 2015, the Net Asset Value
is less than 15 per cent. of the Net Asset Value as at 1 January
2013, the Management Fee shall be varied by the Independent Board
Members to either of the following:
(a) 2 per cent of the Net Asset Value per annum (based on the
Net Asset Value at the end of the previous quarter) less the
administration fee payable to IOMA for such period; or
(b) a fixed amount per annum to be determined by the Independent
Board Members (which shall be adjusted to take into account the
administration fee payable to IOMA).
During the six month periodended 30 June 2013, the Fund paid US$
998,540 (30 June 2012: US$ 1,021,735) as investment management
fee.
Carried interest
During the six month period ended 30 June 2013, no carried
interest is paid / payable (30 June 2012: Nil).
4. Sale of investments held by NeoPath Limited
On 25 August 2010, NeoPath Limited (formerly Venture Infotek
Limited), a portfolio company, has sold its 100% holding in Venture
Infotek Global Private Limited, its wholly owned subsidiary to Atos
Origin (Singapore) Pte Limited (Atos), a company incorporated and
resident in Singapore, for a consideration of US$ 110 million. As
part of the terms of the share purchase agreement, US$ 69.04
million was paid to NeoPath Limited.
On 21 September 2010, NeoPath Limited declared a dividend of US$
0.26 per share amounting to US$ 60.51 million, out of which US$
35.71 million was distributed as dividend to New Wave Holdings
Limited. Out of this distribution, New Wave Holdings Limited has
credited US$ 21.77 million towards the cost of investment in
NeoPath Limited and the balance of US$ 13.94 million has been
recorded as realized gain on sale of investment.
On 6 July 2012, NeoPath Limited realized partial release of
Escrow and distributed the same by way of buyback of 3,520,382
preferred shares; pursuant to which the Group received US$ 3.52
million. The Group accounted for it as a realized gain on sale of
investment in securities.
In April 2013, NeoPath Limited entered into a settlement with
Atos, the acquirer, (with respect to the monies lying in escrow
that were subject to an arbitration process) and received US$ 13.07
million as a settlement amount. NeoPath Limited distributed the
same by way of buyback of 5,613,579 preferred shares; pursuant to
which the Group received US$ 5.61 million. The Group accounted for
it as a realized gain on sale of investment in securities.
The only asset now left in NeoPath Limited is the withholding
tax refund. Atos deducted withholding tax towards Indian income tax
of US$ 15.96 million and deposited with the Government of India.
NeoPath Limited is in the process of claiming a refund of the
withholding tax based on its position that the capital gains
realized on the sale is exempt from tax in India under the relevant
provisions of the India-Mauritius tax treaty. Consequently, based
on the tax counsel opinion, the entire amount of US$ 15.96 million
has been considered as fully recoverable and the present value of
the expected tax refund has been included in the fair value
estimate of the investment in NeoPath Limited as at 30 June
2013.
5. Directors' fees and expenses
The Fund pays each of its directors an annual fee of GBP20,000
and the Chairman is paid an annual fee of GBP25,000, plus
reimbursement for out-of-pocket expenses incurred in the
performance of their duties. The members of the Audit Committee are
paid an annual fee of GBP2,000 and the Chairman of the Committee is
paid an annual fee of GBP5,000. Mr. Raghavendran has waived his
director fee as long as he is interested in the Investment
Manager.
The Fund does not remunerate its directors by way of share
options and other long term incentives or by way of contribution to
a pension scheme.
6. Cash and cash equivalents
30 June 30 June
2013 2012
Cash at bank 1,895,265 455,004
Time deposits 4,530,954 6,522,170
6,426,219 6,977,174
7. Share capital and additional paid-in capital
30 June 30 June
2013 2012
Authorized share capital:
1,000,000,000 ordinary shares of $0.01
each 10,000,000 10,000,000
----------------------------------------- ----------- -----------
Number Share Additional Total
of Capital paid-in capital
Shares
As at 1 January
2013 109,734,323 1,097,344 115,178,423 116,275,767
Capital distribution - - (3,292,029) (3,292,029)
As at 30 June
2013 109,734,323 1,097,344 111,886,394 112,983,738
As at 1 January
2012 109,734,323 1,097,344 117,373,109 118,470,453
As at 30 June
2012 109,734,323 1,097,344 117,373,109 118,470,453
---------------------- ------------ ---------- ----------------- ------------
8. Income taxes
Under the laws of the Cayman Islands, the Fund, Kubera
Cross-Border Fund (GP) Limited and Kubera Cross-Border Fund LP, are
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 Fund and its Cayman based subsidiaries, or by
way of withholding in whole or part of a payment of dividend or
other distribution of income or capital by the Fund and its Cayman
based subsidiaries, to its members or a payment of principal or
interest or other sums due under a debenture or other obligation of
the Fund and its Cayman based subsidiaries.
Under laws and regulations in Mauritius, the Fund's majority
owned subsidiaries, Kubera Cross-Border Fund (Mauritius) Limited
and New Wave Holdings Limited, are liable to pay income tax on
their net income at a rate of 15%. They are however entitled to a
tax credit equivalent to the higher of actual foreign tax suffered
or 80% of Mauritius tax payable in respect of their foreign source
income tax thus reducing their maximum effective tax rate to 3%.
Both subsidiaries have received a tax residence certificate from
the Mauritian authorities certifying that they are residents of
Mauritius, which is renewable on an annual basis subject to meeting
certain conditions and which make them eligible to obtain benefits
under the Double Tax Avoidance Treaty between Mauritius and
India.
ASC 740, "Accounting for Income Taxes" clarifies when and how to
recognize tax benefits in the financial statements with a two-step
approach of recognition and measurement. It also requires the
enterprise to make explicit disclosures about uncertainties in
their income tax positions, including a detailed roll-forward of
tax benefits taken that do not qualify for financial statement
recognition. There are no uncertain tax positions and related
interest and penalties as of 30 June 2013.
The Fund monitors proposed and issued tax law, regulations and
cases to determine the potential impact to uncertain income tax
positions. As at 30 June 2013, there are no potential subsequent
events that would have a material impact on unrecognized income tax
benefits within the next six months.
9. Non-controlling interest
30 June 2013 30 June
2012
Share capital 7,648,511 8,474,945
Accumulated share of (loss) / gain (911,887) 418,793
Total 6,736,624 8,893,738
Non-controlling interest is primarily composed of the
partnership interests of Kubera Cross-Border Incentives SPC -
Co-Investment Segregated Portfolio, a Cayman Islands company and an
affiliate of the Investment Manager, in the consolidated
affiliates.
10. Transactions with related parties
A. The following table lists the related parties of the
Group:
Name Nature of relationship
Wijayaraj Anandakumar Mahadeva Director*
Ramanan Raghavendran Director
Michel Casselman Independent Director*
Martin Michael Adams Independent Director
Robert Michael Tyler Independent Director
Pravin Ratilal Gandhi Independent Director*
Kubera Partners LLC Investment Manager
Kubera Cross-Border Incentives Special Limited Partner
SPC - Carried Interest SP of the Partnership
------------------------------- ------------------------
* Resigned w.e.f. 17 January 2013
B. During the period transactions with related parties are as disclosed below:
30 June 30 June
2013 2012
Investment management fees paid to Investment
Manager 998,540 1,021,735
Expenses incurred by Kubera Partners 63,519 -
LLC on behalf of the Fund
Director fee and reimbursement of expenses
paid to Michel Casselman 4,398 16,283
Director fee, audit committee member
fee and reimbursement of expenses paid
to Martin Michael Adams 25,569 21,387
Director fee, audit committee member
fee and reimbursement of expenses paid
to Robert Michael Tyler 19,677 19,803
Director fee and audit committee member
fee paid to Pravin Ratilal Gandhi 256 17,596
11. Loans receivables
Loans receivable as at 30 June 2013 are given below:
Borrower name Sector Cost Date of Carrying Date of maturity
loan rate of
interest
(% p.a.)
Ocimum Biosolutions
Inc 6 December 6 December
(secured) Life Sciences 2,500,000 2010 20.0 2012
Synergies
Castings USA 1 February 3 August
Inc. Automotive 1,500,000 2010 12.5 2015
(secured) Components
Synergies
Castings USA 1 February 3 August
Inc. Automotive 1,000,000 2010 12.5 2015
(secured) Components
Repayment
of $25,000
starting
Synergies from Oct
Castings USA 30 March 2011 till
Inc. Automotive 575,000 2011 7.0 Nov 2013
(unsecured) Components
Total 5,575,000
Loans receivable as at 30 June 2012 are given below:
Borrower name Sector Cost Date of Carrying Date of maturity
loan rate of
interest
(% p.a.)
Ocimum Biosolutions
Inc 6 December 6 December
(secured) Life Sciences 2,500,000 2010 20.0 2012
Synergies
Castings USA 1 February 3 February
Inc. Automotive 1,500,000 2010 12.5 2013
(secured) Components
Synergies
Castings USA 1 February 3 February
Inc. Automotive 1,000,000 2010 12.5 2013
(secured) Components
Repayment
of $25,000
starting
Synergies from Oct
Castings USA 30 March 2011 till
Inc. Automotive 575,000 2011 7.0 Nov 2013
(unsecured) Components
Total 5,575,000
12. Interest income
Interest income consists of the following:
30 June 2013 30 June 2012
Bank interest 1,520 2,715
Interest on loan 59,945 176,565
Less: withholding
tax - (48,282)
Net Interest Income 61,465 130,998
13. Concentration of risks
The Group's investment activities expose it to various types of
risks, which are associated with the financial instruments and
markets in which it invests. The financial instruments expose the
Group in varying degrees to elements of liquidity, market and
credit risk. The following summary is not intended to be a
comprehensive summary of all risks inherent in investing in the
Group and reference should be made to the Group's admission
document for a more detailed discussion of risks.
a) Market risk
Market risk is the risk that the value of a financial instrument
will fluctuate as a result of changes in market variables such as
interest, foreign exchange rates and equity prices, whether those
changes are caused by factors specific to the particular security
or factors that affect all securities in the markets. Investments
are typically made with a specific focus on India and thus are
concentrated in that region. Political or economic conditions and
the possible imposition of adverse governmental laws or currency
exchange restrictions in that region could cause the Group's
investments and their markets to be less liquid and prices more
volatile. The Group is exposed to market risk on all of its
investments.
b) Industry risk
The Group's investments may have concentration in a particular
industry or sector and performance of that particular industry or
sector may have a significant impact on the Group. The Group's
investments may also be subject to the risk associated with
investing in private equity securities. Investments in private
equity securities may be illiquid and subject to various
restrictions on resale and there can be no assurance that the Group
will be able to realize the value of such investments in a timely
manner.
c) Credit risk
Credit risk is the risk that an issuer/counterparty will be
unable or unwilling to meet its commitments to the Group. Financial
assets that are potentially subject to significant credit risk
consist of cash and cash equivalents, investments in convertible
loans and receivables. The maximum credit risk exposure of these
items is their carrying value.
d) Currency risk
The Group has assets denominated in currencies other than the US
Dollar, the functional currency. The Group is therefore exposed to
currency risk as the value of assets denominated in other
currencies will fluctuate due to changes in exchange rates.
The Group's cash and cash equivalents are held in US
Dollars.
e) Liquidity risk
The Group is exposed to liquidity risk as a majority of the
Group's investments are largely illiquid. Illiquid investments
include any securities or instruments which are not actively traded
on any major securities market or for which no established
secondary market exists where the investments can be readily
converted into cash. Reduced liquidity resulting from the absence
of an established secondary market may have an adverse effect on
the prices of the Group's investments and the Group's ability to
dispose of them where necessary to meet liquidity requirements. As
a result, the Group may be exposed to significant liquidity
risk.
f) Political, economic and social risk
Political, economic and social factors, mainly changes in Indian
laws or regulations and the status of India's relations with other
countries may adversely affect the value of the Group's
investments.
14. Previous year comparatives
Prior year comparatives have been regrouped and reclassified
wherever necessary to confirm with the current year's
presentation.
[1] Sources: Reserve Bank of India, BSE India, Securities and
Exchange Board of India, Bloomberg & others
This information is provided by RNS
The company news service from the London Stock Exchange
END
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