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Dhir India Inv. plc (DHIR)

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Tuesday 16 December, 2008

Dhir India Inv. plc

Half Yearly Report

RNS Number : 1869K
Dhir India Investments plc
16 December 2008
 



16 December 2008


Dhir India Investments plc

("Dhir India", "DII", or the "Company")


Half Year Results


Dhir India (AIM: DHIR), the first UK quoted company established to invest in the $50 billion Indian non-performing assets sector, announces half year results for the six months to 30 September 2008. Comparative figures are taken from the audited accounts for the year to 31 March 2008 as a result of the Company's incorporation and Admission to AIM taking place in June and July 2007 respectively. 


Summary


  • Underlying Value of investments increased by INR241 million with a fair valuation as at the balance sheet date of INR1,972 million (31 March 2008: INR1,731 million)  

  • Strong balance sheet with cash and cash equivalents of £6.7 million (31 March 2008: £11.2 million) and no borrowings 

  • Adjusted (to exclude deferred tax provisions) net asset value per share 160p (31 March 2008: 175p)

  •  Realization time frame extended as a result of current economic circumstances but initiatives being undertaken to increase value 


Charlie Hambro, Non-Executive Chairman of Dhir India, commented: "Since my last report we have continued to review our investments with a view to exiting as and when appropriate. However, the current global economic conditions inevitably mean that the realization process is an ongoing one and may well result in a longer timeframe than originally anticipated. The Board remains convinced that the underlying value of these investments is extremely sound and will produce appropriate returns as and when liquidity and economic conditions improve. 


"The investments have been valued by our advisors under the same criteria as in previous reports and it has produced a 2% increase in assessed value as stated in INR. This is primarily due to the increased debt position in two investments that has given your company a more commanding position in that investment. The Board shares the view of most commentators that the Indian economy will continue to produce positive growth, albeit somewhat lower than previous forecasts, even in the current conditions. 


"However, due to the extremely volatile foreign exchange markets at this time, the increase in the underlying investments has manifested itself in an unrealized foreign exchange loss of £2.4 million as dealt with through the foreign exchange reserve. Since the balance sheet date, and as at the date of this release the unrealized exchange losses have reversed and are now represented by an unrealized foreign exchange gain.


"Given the above, while the cash position of the company remains satisfactory, your Board is aware that the longer timeframe for realizations means that attention to operating costs is paramount and discussions are continuing on appropriate ways to reduce these costs in order to give the company the maximum time flexibility in terms of realization negotiations. We would expect to conclude these discussions over the coming months and report accordingly at the time of the full year statement in mid 2009."




Alok Dhir, Non-Executive Director of Dhir India, added: 


"While the western world is in the throes of a financial meltdown with the spectre of recession facing some of the developed economies, the long term India growth story is somewhat less affected by these developments. Nonetheless, as a fall out of the worldwide crisis, there is certainly a slowdown as investors have adopted a wait and watch policy and have become more cautious in committing to transactions. Reflecting this trend, our Valuers have reduced the value of intrinsic assets appropriately and also applied suitable discounts for liquidity to reflect the longer anticipated periods for realizing the assets.


"As a strategy, we are planning to work assiduously on completing the workout of the investments made by the Company and to seek exit options for existing investments while keeping our options open on lucrative lower priced deals coming into the market".



For further information, please visit www.dhirindia.com or contact: 


Shiva Consultants

Evolution Securities

Tavistock Communications   

Alok Dhir

Tom Price

Simon Compton

Shivi Agarwal

Jeremy Ellis

Jeremy Carey


Chris Clarke

Simon Hudson

Tel: + 91 11 42410000

Tel: +44 (0) 20 7071 4300

Tel: + 44 (0) 207 920 3150




Chairman's Statement


I am pleased to report Dhir India's progress to shareholders in our second set of half yearly results since listing on AIM in July 2007 as the first (and currently only) UK quoted company focused on investing in the Indian non-performing assets sector.


Strategy

Dhir India aims to capitalise on the non-performing assets (NPAs) largely created in the 1990s by the transformation of the Indian economy from a centrally regulated one to a quasi-free market economy. The NPAs resulting from this process, during a time of very high domestic interest rates in India, are typically over-leveraged capital structures with insufficient liquidity and in default of their obligations to creditors. However, many of the NPAs are underpinned by high quality manufacturing or other assets whose value can be unlocked through the resolution of the existing debt. The successful exit from such NPA investments made by Dhir India should deliver expected profits, providing shareholders with both income and capital growth.


Current global economic conditions are without doubt affecting the Indian economy, albeit positive economic growth is still forecast for this year and next. In addition, the credit crisis is making banks generally more reluctant to lend and slower in their decision making processes. As a result, the time frame for resolution of our existing investments appears likely to lengthen somewhat compared to that anticipated at the time of our IPO.


Results

The fair value of underlying investments in debt and securities held by the Company and its subsidiaries was valued by Grant Thornton India at the half year end. The valuation produced a value for Dhir India's share of these investments of £22.9 million (31 March 2008: £21.8 million), excluding deferred tax provisions of £2.7 million (31 March 2008: £2.7 million). This represents an uplift over the costs of investment to date of 39.1% and has resulted in a net asset value per share for the Company at the half year end of 143p (31 March 2008: 159p).


The adjusted net asset value excluding the deferred tax provision, which the directors anticipate should not be payable, is 160p (31 March 2008: 175p).  The consolidated income statement shows a loss attributable to shareholders of £0.41 million (period to 31 March 2008: loss of £0.07 millionand a loss per share of 2.44p (period to 31 March 2008: loss per share of 0.45p). The Group had cash balances of £6.7 million at 30 September 2008 (31 March 2008: £11.2 million) and no borrowings.


Review

Dhir India has made six investments to date for a total potential cost of £24.42 million (assuming maximum positions are taken), of which £16.47 million had been invested by the half year end. The portfolio of investments is diversified by region of India, by sector and by resolution strategy. The Company and its investment manager, Shiva Consultants, have been active in the process of cleaning up the encumbrances on the assets and also in discussions relating to the resolution of certain of the existing investments which are ongoing.


Summary of Investments


Project Turquoise 

The investment relates to a company which was originally engaged in the manufacture of electrical and electronic meters but ceased production in 1998 due to an inability to restructure the business and invest in plant and machinery. The plant is located on a 41,000 sq m site in the centre of the State Capital of a prominent state in North India. Investment to date totals £1.63 million. The current valuation is £6.18 million.


Project Aquamarine 

Project Aquamarine relates to a company which was originally engaged in the manufacture of styrene butadiene rubber, nitrite rubber, styrenated phenol and alcohol. It suspended work in July 1999 due to severe capital constraints, labour and power supply issues. Its plant is located over 1,200 acres of land which is situated in a tier II industrial city in Uttar Pradesh, in North India. Investment to date totals £1.59 million. The current valuation is £4.19 million.


Project Triton 

The company was originally engaged in the manufacture of edible oil at its refining unit in Western India. Its factory, which has a daily capacity of 250 MT per day is built on a 21,524 sq m site in a prominent city of Western India. The unit has been closed since 2006. Investment to date totals £0.95 million. The current valuation is £0.99 million.


Project Destination 

The company to which this investment relates had proposed to set up a resort in an internationally popular tourist destination in Western India. The land, with its planning consent, is an attractive site with significant development potential. Investment to date totals £1.52 million. The current valuation is £1.81 million.


Project LCAL 

LCAL manufactures caustic soda based products, supplying the paper, soap, dyes, chemicals and plastic industries. It performed satisfactorily until 1997 when it incurred significant losses as a result of lengthy power cuts and increases in input production costs. Thereafter, from 2003, a new management team has effected a recovery of the business. Investment to date totals £1.11 million. The current valuation is £1.74 million.


The Bombay Stock Exchange (BSE) has approved listing of its shares. LCAL is now in the process of dematerialising the shares to be held in electronic format with the National Securities Depository Limited to enable trading to commence.


Project Cygnet

This investment relates to a company which has been engaged in the manufacture of stainless steel at its plant located on a 51 acre prime site in North India close to New Delhi. Investment to date totals £9.67 million. The current valuation is £8.00 million.


Outlook

I reported in my statement accompanying the final results in July this year that Dhir India had established itself as a credible and attractive partner in the growing Indian distressed assets sector - with lenders, investors and professionals. This remains the case and, as a Board, we are still satisfied that the Company's medium term prospects are exciting and potentially rewarding for shareholders. The note of caution I must sound concerns the timescale of our investment resolutions, which has obviously been adversely affected by the global credit crisis and the attendant economic slowdown.


The Directors are confident that the Company's Investment Advisers are vigorously addressing the issue of shorter term realisations even in the current economic circumstances. I still hope to be able to announce our first realisations within six to nine months. I look forward to reporting further progress to shareholders at the end of the second half.


Charlie Hambro

15 December 2008




Independent Review Report to Dhir India Investments Plc


Introduction


We have been engaged by the Company to review the condensed set of financial statements in the half-yearly report for the six months ended 30 September 2008 which comprises the Consolidated Income Statement, the Consolidated and Company Balance Sheets, the Consolidated Cash Flow Statement and the Consolidated Statement of Changes in Recognised Income and Expenses and the related explanatory notes. We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 


This report is made solely to the Company in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.


Directors' responsibilities


The half-yearly report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly report in accordance with the AIM Rules.


As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRS. The condensed set of financial statements included in this half-yearly report has been prepared in accordance with IAS 34 Interim Financial Reporting.


Our responsibility


Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly report based on our review. 


Scope of review


We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.


Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 30 September 2008 is not prepared, in all material respects, in accordance with IAS 34 and the AIM Rules.


KPMG Audit LLC

Chartered Accountants 
Heritage Court,

41 Athol Street

Douglas

Isle of Man, IM99 1HN


15 December 2008




CONSOLIDATED INCOME STATEMENT 

FOR THE SIX MONTHS TO 30 SEPTEMBER 2008



Notes


Unaudited accounts to 30 September 2008


Audited accounts to 31 March 2008 (Note 11)




£'000

£'000

Bank Interest 


189 

725 

Administrative expenses


(597)

(814)

Foreign exchange gains


-

21 


Loss Before Taxation



(408)


(68)

Taxation


-

-

Attributable to:




Equity Shareholders of the Company


(407)

(75)

Minority interest


(1)



(408)

(68)


Basic and diluted loss per Ordinary Share


7


(2.44p)


(0.45p)



CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

FOR THE SIX MONTHS TO 30 SEPTEMBER 2008



Notes



Unaudited accounts to 30 September 2008


Audited accounts to 31 March 2008 (Note 11)




£'000

£'000

Fair Value Gains 




Unrealised change in fair value of available for sale financial assets

8

54

8,080

Less : deferred taxation


(18)

(2,702)

Less : performance fee

6

(9)

(1,088)



27

4,290

Foreign exchange (loss)/gain


(2,624)

205

Net (expense)/income recognised directly in equity


(2,597)

4,495

Loss for the period


(408)

(68)

Total recognised (expense)/income for the period



(3,005)


4,427





Attributable to:




Equity Shareholders of the Company


(3,166)

3,420

Minority interest


161

1,007


Total



(3,005)


4,427




CONSOLIDATED BALANCE SHEET

FOR THE SIX MONTHS TO 30 SEPTEMBER 2008



Notes


Unaudited accounts to 30 September 2008


Audited accounts to 31 March 2008 (Note 11)




£'000

£'000

Current Assets




Available for sale financial assets

8

23,918

21,779

Trade and other receivables


69

64

Cash and cash equivalents


6,674

11,232

Total Assets


30,661

33,075

Equity




Issued share capital

9

1,667

1,667

Share premium


21,355

21,355

Unrealised investment revaluation reserve


3,152

3,290

Foreign exchange reserve


(2,419)

205

Retained reserves


7

(75)

Equity attributable to equity holders 


23,762

26,442

Minority interest in equity


2,888

2,727

Total equity


26,650

29,169

Non current liabilities




Deferred income tax liabilities


2,720

2,702

Provision for other liabilities and charges


1,169

1,088

Total non current liabilities


3,889

3,790

Current liabilities




Trade and other payables


122

116

Total current liabilities


122

116

Total liabilities


4,011

3,906

Total equity and liabilities


30,661

33,075


 


CONSOLIDATED INTERIM CASH FLOW STATEMENT

FOR THE PERIOD ENDED 30 SEPTEMBER 2008




Unaudited accounts to 30 September 2008

Audited accounts to 31 March 2008 (Note 11)


£'000

£'000

Operating activites



Loss before tax for the period

(408)

(68)

(Increase) in trade and other receivables

(5)

(64)

Increase in trade and other payables

6

116

Foreign currency

(1,286)

82

Cash generated from operating activities

(1,693)

66

Investing activities



Acquisition of investments

(2,865)

(13,576)

Cash used in investing activities

(2,865)

(13,576)

Financing activities



Proceeds from the issue of ordinary share capital

-

25,000

Share issue expenses paid

-

(1,978)

Proceeds from minority interests

-

1,720

Cash generated from financing activities

-

24,742




Net (decrease)/increase in cash and cash equivalents

(4,558)

11,232

Cash and cash equivalents at start of period

11,232

-

Cash and cash equivalents at 30 September 2008

6,674

11,232




Interest received in period 

185

683




Notes to the Unaudited Interim Results

For the period ended 30 September 2008


1. The Company


Dhir India Investments plc (the "Company") was incorporated and registered in the Isle of Man under the Isle of Man Companies Acts 1931 to 2004 on 20 June 2007 as a public company with registered number 120065C.


Following the close of placing on 12 July 2007, 16,666,665 shares were issued.


The Shares of the Company were admitted to trading on the Alternative Investment Market of the London Stock Exchange ("AIM") on 12 July 2007 when dealings also commenced.


The Company's agents and the Investment Manager perform all significant functions. Accordingly, the Company itself has no employees.


2. Significant accounting policies


These unaudited interim results have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting". They do not include all the information required for full consolidated financial statements and should be read in conjunction with the consolidated financial statements for the period from 20 June 2007 (date of incorporation) to 31 March 2008.


No IFRSs have been adopted early, however it is likely that any Standards issued (but not yet effective) would only require changes in disclosure and not result in changes to the accounting policies for recognition and measurement.


The accounting policies applied by the Group in these condensed consolidated are the same as those applied by the Group in its consolidated financial statements for the period from 20 June 2007 (date of incorporation) to 31 March 2008.


The interim results were authorised for issuance on 15 December 2008.


3. Taxation


The standard rate of income tax for companies on the Isle of Man is 0%. No provision for taxation has, therefore, been made. As the Company is wholly owned by non resident members and is listed on a recognised stock exchange, it meets the definition of a "distributing company" and is therefore exempt from the distributable profits charge in India.


4. Segmental reporting


The Group operates as one business and geographical segment, being investment in distressed debt.


5. Related part transactions


Alok Dhir is the controlling shareholder of Shiva Consultants Private Limited (the Investment Manager) and a director of Dhir India Investments plc. During the period the Company had the following related party transactions with Shiva Consultants Private Limited. The management fee and performance fee arrangements are set out in note 5.


6. Investment Management


Shiva Consultants Private Limited (the 'Manager') is entitled to a management fee of 1.8 per cent per annum of the Net Asset Value of the Group's investments ("NAV") which is payable quarterly in advance in the first year and a management fee of 2 per cent per annum of the NAV payable quarterly in advance thereafter, provided that any fee for any commencing or terminating period shall be the pro-rated amount.


The NAV calculation of each financial year is based on semi-annual independent valuations of such investments in accordance with IFRS as at the end of the relevant financial year and at the date which is six months after the relevant financial year end. Throughout the relevant financial year, the management fee paid on each quarter date is based on the latest NAV calculation. The management fee payments are then adjusted retrospectively following the next NAV calculation.


Fees paid to the Investment Manager: £231,200 (March 2008:£336,230 (see note 10)).

Fees payable to the Investment Manager on the basis of NAV: £101,600 (March 2008 £39,160 (see note 10)).


Performance Fee

The Manager is entitled to a performance fee, calculated as follows, in respect of net proceeds received by the relevant member of the Group in respect of an investment:


• the Net Investment Proceeds will first be allocated to the Group, until the Group has received an amount equal to the Investment Outlay and an Investment IRR of 12 per cent.

• any remaining balance of the Net Investment Proceeds will then be allocated to the Manager until the Manager has received an amount equal to 25 per cent of the return already allocated to the Group;

• any remaining balance of the Net Investment Proceeds will then be allocated between the Group and the Manager in the ratio 80:20 up to an Investment IRR of 25 per cent; and

• any remaining balance of the Net Investment Proceeds will then be allocated between the Group and the Manager in the ratio 65:35.


A Performance fee contingent on realisation of £8,933 has been provided on the net fair value increase in the investments. (March 2008: £1,088,000 (see note 10).


7. Earnings per Ordinary Share


Basic

The basic earning per Ordinary Share has been calculated by dividing the Loss for the period of £408,000 (March 2008: loss £75,000) by the average number of Ordinary Shares of 16,666,677 in issue throughout the period.


Fully Diluted

The fully diluted and basic earnings per Ordinary Shares are the same, as based on the exercise price of the Warrants, the Warrants are not dilutive.


8. Available for Sale - Financial Assets



Unaudited accounts to 30 September 2008

Audited accounts to 31 March 2008


£'000

£'000

Balance as at 1 April 2008

21,779

-

Additions

2,865

13,577

Advances (see below *)

1,000

-

Movement in unrealised appreciation

54

8,080

Foreign exchange effects

(1,780)

122

End of period

23,918

21,779


There were no disposals or impairment provisions on available for sale Financial Assets. All available for Sale Assets have been valued based on the "Price of Recent Investment" method.


The company invested a further £2,500,000 into project Cygnet in the period, and £365,000 in project Aquamarine.


*The company has advanced £1,000,000 in respect of project "Entrey India Projects Private Limited" in the period with a view to onward investment, however the investment did not proceed and the funds were returned to the Group on the 16th October 2008.


9. Share Capital



Notes

Unaudited accounts to 30 September 2008

Audited accounts to 31 March 2008



£'000

£'000

Authorised




100,000,000 Ordinary shares of 10p


10,000

10,000

Allotted, called up and fully paid issued during the period




16,666,677 Ordinary shares of 10p


1,667

1,667


The company issued 16,666,665 Ordinary Shares of 10p for cash at a placing price of 150p per share on 12 July 2007.


10. Warrants


At the placing on 12 July 2007, for each Ordinary Share received the subscriber also received one Warrant for every five Ordinary Shares.



Allotted

Exercise Price

Subscription Period

Warrants

3,333,333

£1.875

12 July 2008 - 12 July 2009


11. Comparative period


The comparative period is the period from 20 June 2007 (date of incorporation) to 31st March 2008.


12. Capital Commitments


The total cost  of  investment as  on  30 September 2008 is £16.47million. As far as committed funds are concerned, there are no legal commitments pending at that date. However, as per the original investment proposals, the maximum positions that could be taken in the six investment opportunities total £24.42 million.


13. Financial instruments and risks


The Group's financial risk management objectives and risks are consistent with those disclosed in the consolidated financial statements for the period from 20 June 2007 (date of incorporation) to 31 March 2008.




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