Shareholders of AIM-listed India focus investment fund Trikona Trinity Capital PLC have approved the appointment of Ajay Piramal-backed Indiareit Investment Management Company (Indiareit) as its investment manager even as its original manager Trikona Advisors Limited (whose management agreement was terminated sometime back even as it owns 3.18% stake) has regarding unprofitable decisions of the board.
In an EGM last week, the shareholders voted in favour of appointment of Indiareit as investment manager and to change the name of the company to Trinity Capital PLC. The firm had earlier withdrawn two other resolutions (from voting) that sought to approve the directors' incentive plan in respect of two directors including the chairman Martin Adams.
This move follows Trikona Trinity's ongoing dispute with Trikona Advisors Ltd (TAL) where the AIM-listed firm claims breach of management agreement. In December last year, Trikona Trinity said it would terminate the portfolio management agreement effective March 16, 2010.
Trikona Advisors that has disputed any breach of agreement has in a letter to shareholders ahead of the EGM raised various issues including certain decisions of the board. These include: tendering 18.7 million shares (almost half of its holding) of Pipavav Shipyard Ltd to SKIL’s offer at Rs 61.5 per share even as the average price of the share on 25 June (the last working day before the close of the offer) was Rs 97; selling entire holding in IL&FS Transportation Networks Ltd in the IPO at Rs 258 per share even as the share is trading at Rs 296 (closing price on July 28, 2010); selling entire holding in Phoenix Mills Limited last November at Rs 170 per share(current price is Rs 224); disposing off shares of DB Hospitality for about Rs 100 crore approximately the same as what was invested thus generating a negative IRR (despite it making progress and acquiring new projects that will improve the valuation ahead of its proposed IPO).
Trikona Advisors alleged, "The Board has consistently sought to achieve rapid realisation rather than maximise the return to shareholders like you."
It further pointed out that the Indiareit is promised an annual management fee of $2 million plus a performance fee of 7.5% of the net asset realised and that there is no relationship between the fees and the return to the shareholders. This means, Indiareit can make handsome profit even if shareholders don't make a gain, it said.
Trikona Advisors has also pointed out how some of the directors are proposed to be paid huge fees as also raised questions over how independent they are given their links to various other firms and existing shareholders of Trikona Trinity Capital.
Trikona Trinity has been a prolific investor in the Indian real estate sector during 2006-2008 with several of its portfolio companies going public in the last one year. It has also made open market exits of its investments in hospital chain Fortis Healthcare and Phoenix Mills.
The appointment of Indiareit would push up its assets under management that currently manages one offshore real estate fund of $200 million(in which 3i Group plc is an anchor investor). Indiareit also manages two other domestic funds - Indiareit Domestic Fund Scheme I (Rs 430 crore) and Indiareit Domestic Fund Scheme III (Rs 537 crore). It is also in the process of raising Rs 750 crore Indiareit Domestic Fund Scheme IV including green shoe option of Rs 250 crore.
Meanwhile, in a separate development Trikona Trinity Capital has said the buyer of its investment in DB Hospitality Private Limited has requested a further extension of time to 31 October 2010 for the transaction and the company has agreed to it subject to the payment of a non refundable deposit of approximately £1.4 million (10% of the deal value plus interest on the unpaid balance).