Eredene Capital

In last month’s Aimzine we featured Eredene Capital, a UK based company which invests in infrastructure projects in India – see last month’ article here. On 30 June Eredene issued its Preliminary Results for the 15 months to 31 March 2009 (The change of accounting date was to bring Eredene in line with its investee companies).

 The headline numbers showed a loss for the 15 months of £6.4 million and the Group had cash balances of £26.2 million (representing 10.7 pence per share) at the period end. Net assets are valued at £53.7 million, equivalent to 21.9 pence per share. The Net Asset Value has fallen by 9% since 2007, which the company says is mainly due to falling land prices in Mumbai.

To date the Eredene Group has made nine investments in India - seven in port services, logistics and distribution warehouses, one in IT offices and one in a large scale, affordable housing development. Three of its investments are now revenue generating and a fourth is taking sales deposits. 

David Coltman, non-executive chairman of Eredene was please to report that the Group had received its first dividend from an investee company with Sattva Vichoor CFS delivering a dividend within two years of construction first starting. David went on to say they anticipate that all of their investee companies will be revenue generating by the end of 2010.

Three of its investments are now

revenue generating and a fourth

is taking sales deposits. 

Economic and Political Outlook

We reproduce below Eredene’s views from the Chairman’s statement on the future for India and Eredene’s investments:

‘India's economy has inevitably been affected by the global economic crisis, but while much of the world has plunged into recession, India's has fared far better. GDP grew at 6.7% for the fiscal year 2008-09 while much of the world was experiencing negative growth. 

Container traffic, one of the primary profit drivers for Eredene's ports services businesses, is forecast to continue to grow in 2009-10, albeit the growth rate is not expected to be as high as in previous years. Total cargo handling capacity of Indian ports is forecast to increase to 1.5 billion tonnes by 2012 from the present 0.8 billion tonnes.

The Indian political landscape looks increasingly stable following the parliamentary elections in the world's largest democracy in May 2009. The Congress Party, led by Dr Manmohan Singh, fought the elections on a manifesto of development and poverty alleviation. The result consolidated the Congress Party's hold on power and increased its majority in the lower house. This gives the Prime Minister a solid mandate for completing his economic liberalisation and development agenda, much of which was left incomplete in the last Government due to the conflicting agendas of his coalition partners.

Immediately after the elections, the new Government announced that investment in infrastructure and policy initiatives to encourage private investment in infrastructure will be among the top priorities. According to Government estimates, India needs to invest some $500 billion in its infrastructure by 2012 - primarily in roads, rail, ports, airports and energy - in order to remain competitive.

Indian stocks rose in a post-election market rally on expectations that the ruling coalition's decisive victory would lead to further economic liberalisation, more privatisations, financial sector reforms and increased infrastructure spending.’

Project pipeline

We also found the section on the Group’s project pipeline of interest, particularly the final paragraph regarding the raising of further funds:

GDP grew at 6.7% for the

fiscal year 2008-09

‘Among possible future projects, the Eredene Group is part of a consortium bidding to build and operate a major new container terminal at the southern port of Ennore. Eredene is bidding for the project with Spain's leading port operator, Barcelona-based Grup Marítim TCB SL, Spanish construction group Obrascón Huarte Lain SA and GE Mauritius Int Holdings, a subsidiary of America's GE Equipment Services. Eredene would hold a 22% interest in the consortium, if the bid is successful. 

There are four other port projects in the pipeline, one potential airport deal, and opportunities to invest in existing CFS operations at two of India's busiest ports. The Eredene Group is also exploring several options to invest in Logistics Parks including one on a railway which would link into India's planned new rail Dedicated Freight Corridor. 

As Eredene has allocated most of the funds that it raised in 2006 to its existing investments, an exercise is under way to raise capital to invest in these new opportunities. One of several options being explored is to raise an independent second fund to finance these and other future investments which would be managed by Eredene.’ 

Investment Considerations

Eredene seems to have done very well in creating a portfolio of investments in Infrastructure projects in India. The Group are upbeat about the prospects for the Indian economy.

In the short term we would caution that world trade has fallen sharply and that this could impact some of Eredene’s investments. The share price, being at at discount to the Net Asset Value, to some extent reflects this risk.

In the longer term it would seem that the Indian economy will grow rapidly and Eredene’s investments could prove to be extremely rewarding. Moves to start a second fund managed by the Eredene Group could also be worth following.

We will continue to monitor progress at Eredene and we look forward to seeing the levels of returns that the Group achieves from its investments.

One of several options being

explored is to raise an

independent second fund

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Written by Michael Crockett, Aimzine

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