In April 2014, I started to invest in Eredene Capital, a private equity company owning a portfolio of Indian infrastructure assets. At that point in time, the company was in the process of liquidating its assets and returning the net proceeds to shareholders. Already in October 2013, the asset management was handed over to Ocean Dial Asset Management.
At the end of 2014, Eredene delisted from the London Stock Exchange Alternative Investment Market and became a private company. Shortly before the delisting, Mr. Raju Shukla, Chairman and Managing Director of Ocean Dial Asset Management, acquired a 25.4% in Eredene from Ruffer at 3.0 pence per share.
Despite the disadvantages of a delisting for me as a minority shareholder, I decided not only to keep my position but also to increase it briefly before the delisting. Some shareholders were forced to sell as they were only allowed to hold listed companies in their accounts which provided me with the opportunity to top up my position at an even more compelling valuation. My reasoning was mostly based on the fact, that the majority of shares were still held by third party institutional investors supporting the idea of disposing Eredene’s assets and returning the proceeds to shareholders.
Apart from that, from an operational view Ocean Dial has done a good job so far:
They have sold Eredene’s two most problematic investments (Matheran Realty and Apeejay) at what I believe have been very attractive terms;
They substantially reduced operating holding costs to GBP 1.0 m in 2014 from GBP 2.4 m in 2013 with the goal to further reduce costs to GBP 0.5 m in 2015;
They are also heavily involved in managing Eredene’s operating entities. For instance, MJ Logistic probably the most valuable asset in Eredene’s portfolio achieved a positive profit after tax for the first time in 2014.
As a consequence, I have been confident in the asset manager’s operating capabilities.
However, recently things have changed. Together with other investors, Mr. Shukla has extended his investment to 53.6% of Eredene Capital by acquiring Caledonia Investment’s and Ornaisons Foundation’s shares in the company.
This transaction triggered an unconditional mandatory offer to other shareholders. The offer price being equal to the price paid to Caledonia and Ornaisons is 5.5 pence per share.
In the offer document Mr. Shukla and his partners point out that they will not pursue the early wind down of the company and the return of net proceeds to shareholders any longer. To the contrary, they want Eredene’s capital to be permanent. While I am confident, that they are good capital allocators this plan is not in line with my investment case. As already outlined, for me the reason to stay invested in an unlisted private company was the foreseeable return of sales proceeds being substantially higher than my original investment. Unfortunately, this is no longer a probable outcome. Consequently, I have to accept the offer despite representing a 47% discount to NAV.
With the offer expiring tomorrow, I expect the cash receipt to take place two weeks later. The total return from this investment will be 29% (13% excl fx) over a 15 month holding period as outlined below:
Overall, besides generating an attractive return from this investment, I learnt a lot from Mr. Shukla on how to actively acquire good assets at a cheap price.
Edit 10/6/2015: Order was executed on 8/20/2015 generating a total return of 25.8%.
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