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NRI investors sue ICICI Venture in Mauritius demanding $103M over realty fund loss

30 October, 2014

A group of 69 non-resident Indian (NRI) investors has sued ICICI Venture, the private equity arm of ICICI Bank, in the Mauritius Supreme Court, over losses and alleged mismanagement of funds raised for investments in real estate sector.

The issue relates to Dynamic India Fund lll (DIF III), a fund promoted by ICICI Venture and ICICI Bank, and raised to pool in money from overseas for India Advantage Fund III. The petitioners have alleged that DIF lll invested in real estate projects that flopped miserably, instead of world class ones as the marketing teams promised.

The fund was promoted to be a close-ended one with a corpus of $220 million with the objective of developing, leasing, owning and selling quality office buildings, residential premises and retail spaces that are attractive to quality tenants/users and appeal to long-term institutional investors.

“A plaint with summons was lodged before the Supreme Court of Mauritius by a group of NRI and foreign investors against DIF III, International Financial Services Ltd (IFS), ICICI Venture Funds Management Company Ltd (ICICI Venture), ICICI Bank and the Western India Trustee And Executor Co Ltd,” the legal firm handling the case, Banymandhup Boolell Chambers, said.

The investors are claiming for a judgment condemning and ordering DIF III, the manager of the fund IFS, ICICI Bank and ICICI Venture to pay $103.7 million together with interests, which comprise the capital investment made by the investors in DIF III and the moral damages.

The petitioners said that the PE firm invested in 13 projects in India of which three properties in Hyderabad and two in Mumbai together consumed approximately 60 per cent of the corpus, as against the original promise to spread its investments to projects in various cities across India.

They add that that after nine years only one project has been completed as of March, 2014. Work on a township project in Chennai, in which the fund invested, has not even commenced due to serious infrastructure problems. Two or three projects are in dire financial liquidity problems and only one project in Pune has been exited after eight years and that too considerably under- performed from projected growth, the investors said.

“Thus, it is a classic case of total neglect of due diligence, research of suitability taking into account of exit term, outrageous underestimation of cost and completion, alleged negligence and overt manipulation of the finances for escalating costs and serious blunders in judgment of selection of projects,” according to the petitioners.

Meanwhile, nine more investors have joined the petitioners, taking the number of petitioners to 78, and filed a complaint with the Indian market regulator Securities and Exchange board of India (SEBI) for an investigation into the mismanagement. 

“A complaint has been filed at SEBI by a group of 78 investors, mainly non-resident Indians and Persons of Indian Origin, requesting SEBI to investigate ICICI Venture Funds Management Company Ltd (ICICI Venture), ICICI Bank, Dynamic India Fund III (DIF III), Dynamic India Fund IV (DIF IV), India Advantage Fund III (IAF III) and India Advantage Fund IV (IAF IV), citing the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulation 2003,” one of the investors said. 

An ICICI Venture spokesperson said: “The allegations levelled by a set of investors, constituting only 12 per cent of the investors in the concerned funds, are totally baseless, not supported by facts and are malicious.

ICICI Venture manages assets of over $2.5 billion and has delivered returns to its investors across various PE funds. Further, it is common knowledge that globally PE as an asset class does not guarantee returns given the equity risks involved. Also, projects in real estate have a long gestation period and hence the returns accrue over a period of time. 

ICICI Venture has extended the fund’s life by three years to optimise the realisations from the portfolio. ICICI Venture also simultaneously offered investors a cash exit option in line with global best practices.

As far as the legal proceedings instituted are concerned, ICICI Venture will take necessary steps regarding the same based on legal advice”.

The development, which has been brewing since early this year, comes at a time when ICICI Venture is looking to raise around $500 million in its next sector agnostic PE fund.

Besides its cross-sector investment platform, realty, infrastructure and mezzanine investment funds, ICICI Venture also runs a joint special situations fund with Apollo Global.

(Edited by Joby Puthuparampil Johnson)

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Anon . 4 years ago

Thanks to the builders and the lack of regulatory control of this “breed” several have been burnt badly. Time, the new government set up effective regulator and special courts. Recently only, did the media publish BMC undertable rates for issuing permits ! This entire eco-system needs to be cleaned and PEs need to lobby (for themselves and their investors) to built credibilty in this asset class.

Anon2 . 4 years ago

Well I don’t see how you can blame the investment advisor. The advisory firm might be incompetent when it comes to real estate investing, sure, but that’s the risk investors take when they select an advisor. Frivolous lawsuits don’t take you anywhere, when you don’t allege any malpractice. Sebi should throw out the complaint and fine these investors for wasting its time

Romil . 4 years ago

The fund started way back around 2005 and if someone has been tracking the real estate investment scenario in India then it has many commoners multi millionaires. However for some strange reason the India Advantage Fund III is negative on capital investment which is very surprising looking at the real estate boom in India. Moreover the fund only invested in a couple of cities and ignored projects in millennium cities like Gurgaon and Noida. Could there have a been a possibility of collusion between the fund manager / ICICI management and the builders to escalate costs and show loss on exits. This move by the investors should benefit all investors of IAF III I hope.

Maksud Shaikh . 4 years ago

SEBI should appoint a commitee to investigate the alleged mismanagement done by ICICI Ventures to its investors

Govindaraj . 4 years ago

The objective of the fund and the way it is being managed are in conflict. The objective is to spread out the fund exposure to various categories than concentrating on a few projects. The Fund manager were expected to know regulatory mechanism governing the sector. It is surprising to see that this fund has not performed even when the sector is booming. A thorough investigation will definitely through light on how they have failed to perform and it can be a learing lesson to others

NRI investors sue ICICI Venture in Mauritius demanding $103M over realty fund loss

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