AIM-listed India-focused private equity firm Elephant Capital is on its way to exit its controversial investment in Global Cricket Ventures (GCV), a company that was a sub-licensee of World Sports Group which, in turn, held the online and mobile broadcast rights to the Indian Premier League (IPL) and has reported or anticipates future write downs across its portfolio, it said in its preliminary financial results for twelve months ended August 2010.
Last June, the Board of Control for Cricket in India had decided to rescind its global media contracts with World Sports Group and this decision affected the business of GCV. Consequently, the board of Elephant Capital has decided to dispose off its investment in GCV and accordingly to adjust the valuation of this investment for the August 2010 statement of financial position. Elephant Capital had invested £5.9 million in GCV whose value is pegged at just £1.9 million.
The investment was seen as controversial as one of the lead executives of Elephant Capital, Gaurav Burman, (one of the heirs to the Burman family that run Dabur Group in India) is the son-in-law of Lalit Modi, the former boss of the hugely successful T20 club cricket tournament IPL. Modi is facing allegations of irregularities in running IPL and Elephant Capital’s investment in GCV was also under the scanner.
Among its other portfolio firms, clinical research company ClinTec, in which the investment was as recent as August 2010, the recent performance has fallen short of expectations as pipeline projects were slower to come on stream than envisaged, and as some projects were delayed or cancelled.
“The board has made no adjustment to the valuation of this investment for the August 2010 statement of financial position, since underperformance materialised post this date but in the interim results for February 2011, would expect to make a write down in the region of £2.1 million. The board continues to believe that ClinTec’s business model is sound, and is hopeful that this investment will generate value for us over time,” according to a statement by Elephant Capital’s chairman Pramath Raj Sinha.
Encapsulating the performance of the PE firm during the year, the board chairman said, “In summary, this has been a busy but disappointing year for Elephant Capital. We have fully exited one of our investments at a good rate of return and, since the start of the period, have made three additions to the portfolio. It is clearly disappointing to be writing down several of our investments, but we believe that going forward, we have set the portfolio on a sounder footing.”
During the last year, Elephant Capital invested in three firms including children book firm Amar Chitra Katha Pvt Ltd that brings out popular series besides GCV and ClinTec. In the same period, the investment firm exited from IT education services firm NIIT, generating an IRR of 23%.
For the year ended August 2010, the PE firm had revenues (through investment and other income) of £771,000 compared to £871,000 the year ago with total net loss of £2.2 million compared to £5.9 million. The loss per share accordingly declined from 12pence to 5pence a share.
Meanwhile, Obopay- a privately held California based company specialising in mobile phone payment technologies in which Elephant Capital invested in 2007, has continued to develop its emerging markets operations but the roll out in India has been slower than what Elephant Capital had envisaged.
Elephant Capital had invested £1.2 million across two funding rounds in July 2007 and April 2008 and holds 1.2% (on a fully diluted basis). It also subscribed to warrants at the time of its investment, but chose not to exercise them and as a result, these warrants have lapsed last December. Elephant Capital has written off the value of these warrants, which represents a loss of value of £106,000 even as this write down has been offset by foreign exchange gain and value of anti-dilution shares.
Elephant Capital is also a minority investor in three listed firms Mahindra Forgings and Nitco Ltd besides EIH Ltd that runs the luxury hotel chain Oberois. This set of companies were affected by the correction in Indian stock markets with the value of Elephant Capital’s investments in these firms declining by a third since August 31 when it was legged at £12.9 million to £8.5 million as of February 21.