1 Mar 2011 07:00
1 March 2011
EIH plc (the "Company")
Company update and posting of circular re: proposed return of capital and re-registration
The purpose of this announcement is for the directors of the Company (the "Directors") to update shareholders on their activities since being appointed to the board of the Company in May 2010, to announce a proposed first return of capital of US$0.10 per share and to propose the re-registration of the Company under the Isle of Man Companies Act 2006 (as amended) (the "2006 Act") (the "Re-registration"):
Update on Director Activities
Since the Directors were appointed to the board on 17 May 2010, they have:
·; resolved the time-consuming litigation with Katra Holdings Limited and Mr Ramesh Vangal in Mauritius, Singapore and New York with a satisfactory outcome for the Company (as announced in the RNS of the Company dated 4 June 2010);
·; reviewed the Company's cost base and arrangements with service providers with the aim of reducing the Company's cost base;
·; visited the manager of the Evolvence India Fund ("EIF") in Dubai and visited the manager of the Evolvence Life Sciences Fund ("EILSF") in Hyderabad;
·; attended the EIF Limited Partners' Meeting in New Delhi;
·; attended the EILSF Limited Partners' Meeting in Bangalore;
·; visited and met independently with Gland Pharma Limited ("Gland") and the RSB Group ("RSB"), the Company's two direct investments; and
·; developed a good working relationship with the managers of both EIF and EILSF; conducted independent assessments of certain of the investments of the underlying funds held within EIF, and on an ongoing basis conducted regular reviews and regular telephone meetings with the managers of EIF and EILSF.
Update on Major Holdings
EIF
Since the last reporting date, the Company's commitment to EIF has been reduced by US$2.9m to US$6.1m through further capital calls from EIF. Moreover, after allowing for these capital calls the Company has received net cash distributions from EIF in the amount of US$1.8m since the last reporting date.
The majority of EIF's ten underlying funds achieved exits at attractive multiples from certain of their investments, helped by favorable conditions in the Indian capital markets during much of the period under review. Moreover, EIF also realized certain of its direct investments in the period under review. The majority of EIF's ten underlying private equity funds have fully drawn down their committed capital from EIF, and EIF's remaining commitments are concentrated in two funds. As EIF's underlying portfolio matures and further realizations are achieved, the Directors anticipate the receipt of further cash distributions.
The Company has US$28.6m invested in EIF (capital called less refund of capital contributions). This amount equates to the cost of the Company's investment in EIF rather than its Fair Value at a particular reporting date. A further update on EIF will be provided in the Company's results for the year ended 31 December 2010.
EILSF
Since the last reporting date, the Company's commitment to EILSF has been reduced by US$1.5m to US$2.1m through further capital calls from EILSF. EILSF has added one new investment to its portfolio and has made a further investment in an existing investment. The Directors expect that EILSF will draw down substantially all of its committed capital during 2011. The Directors are encouraged by the high quality and strong growth profile evidenced by EILSF's underlying portfolio companies.
The Company has US$3.9m invested in EILSF (capital called less refund of capital contributions). This amount equates to the cost of the Company's investment in EILSF rather than its Fair Value at a particular reporting date. A further update on EILSF will be provided in the Company's results for the year ended 31 December 2010.
Gland
Gland is a specialized generic pharmaceuticals company based in Hyderabad. Gland has delivered strong compound revenue growth and stable EBITDA margins over the past three years. Moreover, it has a portfolio of US Food and Drugs Administration ("FDA") approved products and a promising pipeline. The Company's direct investment in Gland is held through EIF Co Invest X. The shareholders in EIF Co Invest X are the Company and EIF, which invested US$4.5m and US$12.5m respectively, for a total investment of US$17.0m. Furthermore, EIF Co Invest X is, in turn, an investor in EILSF Co-Invest I, the entity through which EILSF invested US$12.5m in Gland. Through the above arrangements, and on a look-through basis, the Company has a total of US$7.7m invested in Gland (at cost) compared to the US$4.5m invested in Gland through EIF Co Invest X.
RSB
RSB is an automotive component manufacturer based in Pune. The Company's direct investment in RSB is held through EIF Co Invest VII. The shareholders in EIF Co Invest VII are the Company and EIF, which invested US$7.0m and US$10.0m respectively, for a total investment of US$17.0m. Through the above arrangements, and on a look-through basis, the Company has a total of US$8.8m invested in RSB (at cost) compared to the US$7.0m invested in RSB through EIF Co Invest VII.
Further updates on Gland and RSB will be provided in the Company's results for the year ended 31 December 2010.
Cash Balance and Future Commitments
The Company currently holds net cash balances of US$12.1m and, therefore, after the return of capital, and on a pro-forma basis, the Company will hold net cash balances of US$5.6m.
At the last reporting date, being 30 June 2010, the Company had outstanding capital commitments of US$12.6m. Since 30 June 2010, the Company's outstanding capital commitments have been reduced by US$4.4m to US$8.2m as at the date of this announcement. The outstanding commitments consist of US$6.1m in respect of the Company's interest in EIF, and US$2.1m in respect of the Company's interest in EILSF.
Return of Capital
At the Company's last annual general meeting, held on 28 June 2010, the Company's newinvestment policy was unanimously approved by shareholders. The new investment policy states:
"The Company shall not make any new investments, save for commitments already entered into. The Company will actively manage its investments and seek to realise such investments in a managed way at an appropriate time, returning proceeds to Shareholders as soon as practicable. Shareholder returns are expected to be delivered by way of return of capital on their shares, whether by dividend, repurchase, tender or otherwise."
In accordance with the Company's new investment policy, the Directors are pleased to announce a proposed return of capital of US$0.10 per share to shareholders. This return of capital is subject to the re-registration of the Company under the 2006 Act being approved by the shareholders of the Company, details of which appear further below.
Analysis of Potential Future Cash Flows
The Company's largest asset, its interest in EIF, represents an investment in a private equity fund-of-funds; which is in turn invested in a number of Indian private equity funds; which are in turn invested in public and private companies across a wide range of sectors. This structure impacts the Company as follows:
1. A longer than usual time lag in producing NAV statements;
2. An inherent unpredictability in the timing of realizations, due to the diversity and complexity of the underlying portfolio; the difficulty of predicting private company exits in any market during any period; and the illiquidity and volatility of public equity holdings of many of the underlying private equity funds;
3. Very limited influence in determining the realization process (with the exception of Gland and RSB); and
4. Limited scope to develop a very detailed independent view on the underlying portfolio companies, as this would require recreating an analytical team and would be prohibitively expensive for the Company's shareholders.
In light of the above, the Directors have prioritized their time and activities as follows:
A schematic cash flow model has been prepared, based on input from the managers of EIF and EILSF, that incorporates various exit scenarios for the private equity holdings and direct co-investments (in the case of EIF), and the portfolio investments (in the case of EILSF). The Directors have also considered scenarios for Gland and RSB, which are direct holdings of the Company through SPVs managed by the manager of EIF. Finally, the Directors have examined various scenarios for the likely timing and magnitude of any further drawdowns.
This preparation and analysis of this cash flow model, while subject to the uncertainties described above, has given the Directors satisfaction that, after the proposed return of capital announced today, the Company will continue to be able to meet its investment objective, notwithstanding that its outstanding capital commitments will exceed its net cash balances.
Posting of circular re: proposed Re-Registration and Return of Capital
A circular (the "Circular"), together with a notice of an extraordinary general meeting of the Company, has today been sent to shareholders convening an extraordinary general meeting to be held at the offices of Cains Fiduciaries Limited on 28th March 2011 at 10.00am (the "Meeting").
The Company is currently incorporated under the Isle of Man Companies Acts 1931-2004 (as amended) (the "1931 Act"). As such, the Company is restricted from returning capital to shareholders except pursuant to a Court sanctioned reduction of capital. In accordance with the Company's investment policy, it is the intention of the Directors to make a return of capital of US$0.10 per share to shareholders as soon as practicable after the Meeting, with possible further returns of capital to be made at a later date. As the procedure for a company incorporated under the 1931 Act to reduce capital is fairly cumbersome because of the need to seek the sanction of the Isle of Man High Court (the "Court") to each such reduction, the Directors have taken legal advice on the alternative options available to the Company. The Directors have been advised that re-registration of the Company under the 2006 Act will remove the need to seek Court sanction to each reduction of capital and so allow the Company to return capital to shareholders, in a more efficient manner.
The Re-registration, together with the subsequent reduction in share capital, is conditional upon the approval by special resolution of the Company's shareholders at the Meeting. In the event shareholders approve the Re-registration, the Company will re-register as a company governed by the 2006 Act and be subject to a new memorandum (the "New Memorandum") and new articles of association (the "New Articles"). Subsequent to this, provided the Board is able to determine that the Company is solvent and will remain so after a capital return to shareholders, it is intended that the Company make a capital return to shareholders of US$0.10 per share. In this regard, subject to the shareholders approving the re-registration of the Company, the Board will be able to reduce the share capital of the Company by such amounts as the directors of the Company consider appropriate from time to time, provided on each occasion the Company satisfies the solvency test set out in section 49 of the 2006 Act.
Other matters
As a board the Directors' objective remains to realize assets at the appropriate time and value, and to return the proceeds less expenses to the shareholders. The Directors will provide shareholders with an estimate of the unaudited 31 December 2010 NAV by the end of April 2011.
Terms used in this announcement shall have the same meaning as set out in the Circular. Copies of this announcement and the Circular will shortly be available on the Company's website http://www.eihplc.co.uk/default.aspx. The existing Memorandum and Articles of Association of the company are available for review at the Company's registered office at any time before the Meeting; in addition, copies of the New Memorandum and the New Articles will be available at the Meeting and, following the approval of shareholders, available on the Company's website.
For further information, please contact:
EIH plc
Rhys Davies
Tel: +41 (0)79 620 0215
Singer Capital Markets (Nominated Adviser)
James Maxwell / Nick Donovan
+44 (0)20 3205 7500