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Forward-looking statements All statements other than statements of historical facts included in this document, including, without limitation, those regarding the Company’s financial position, business strategy, plans and objectives of management for future operations or statements relating to expectations in relation to shareholder returns, dividends or any statements preceded by, followed by or that include the words “targets”, “believes”, “expects”, “aims”, “intends”, “plans”, “will”, “may”, “anticipates”, “would”, “could” or similar expressions or the negative thereof, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company’s control that could cause the actual results, performance, achievements of or dividends paid by, the Company to be materially different from future results, performance or achievements, or dividend payments expressed or implied by such forward looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future.
These forward-looking statements speak only as of the date of this document. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto, any new information or any change in events, conditions or circumstances on which any such statements are based, unless required to do so by law or any appropriate regulatory authority.
The potential investment opportunities referred to in this document cannot be guaranteed and it may be the case that the Company is able to invest in only some or even none of these.
Introduction EIH is a newly incorporated Isle of Man company which has been established for the purpose of making investments in Indian private equity funds and Direct Investments in a wide range of industry sectors in India.
The Directors believe that an investment in EIH should provide investors with access to a diversified Indian private equity portfolio while mitigating issues usually associated with private equity investments such as a lack of liquidity and relatively large minimum investment size.
It is intended that EIH will initially commit the Investible Funds, directly or indirectly through subscriptions
and/or acquisitions of existing interests, approximately:
• 70 per cent. of the Investible Funds to the Evolvence India Fund (of which approximately 31 per cent.
of the Investible Funds will be invested in the alfa cell of the fund (as further detailed at paragraph 12.8 of Part IX) and approximately 39 per cent. will be invested in the beta cell of the fund (effected by way of subscription of new interests as further detailed at paragraph 12.9 of Part IX));
• 10 per cent. of the Investible Funds to the Evolvence India Life Sciences Fund; and • 20 per cent. of the Investible Funds to Direct Investments.
The Directors may alter the above allocation and/or commit the Investible Funds to other Indian focused private equity funds or among Investible Funds and Direct Investments depending on market conditions and the availability of investment opportunities.
The diagram below shows the intended allocation of Investible Funds and the fund structure for EIH following Admission.
EIF and EILSF were initially established and sponsored by Evolvence Capital, a leading Dubai headquartered alternative investment firm. EIF currently has an investment portfolio consisting of 54 companies held through six underlying private equity funds in which EIF has invested directly or indirectly, as well as making investments in four of these companies on a co-investment basis. Further information on the private equity funds in which EIF is invested is set out in Part VI of this document.
The Company aims to provide Shareholders with an attractive level of income together with the prospect for long-term capital growth.
India as an investment destination The Indian economy is among the fastest growing economies in the world, with an average real GDP growth of over 6 per cent. per annum since 1993 and the Asian Development Bank expects the Indian economy to continue to grow over the next decade. The chart below demonstrates India’s real GDP growth since 1993.
Real GDP growth (per cent.) 8.5 8.4 7.3 7.8 7.5 7.3 5.8 6.1 6.5 5.9 4.8 4.4 4.0 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
The Directors believe that India’s growth is sustainable over the long-term. A report on BRIC economies by Goldman Sachs in 2003 predicted that India will be the third largest economy in the world by the year 2050, behind only China and the United States. However, a report by the Asian Development Bank suggests that India may reach such a position on the basis of purchasing power parity in as little as ten years. International investor interest has followed the recent growth momentum of the Indian economy.
The Directors believe India is an attractive investment destination due to the following factors:
• rapid economic growth led by the growth of the services sectors;
• average economic growth of approximately 6 per cent. per annum over the last 25 years and the potential for double-digit economic growth in the future;
• favourable demographics with a large, skilled, working-age population;
• a domestic savings rate of 29 per cent. of GDP in 2004/05 and foreign exchange reserves of $151.6 billion at March 2006;
• the emergence of a large middle-class; and • high corporate governance standards in the context of Asian markets.
Background to Indian private equity The Directors believe that the Indian private equity market currently presents an attractive investment opportunity. With the gradual relaxation of restrictions on FDI by the Indian government, a growing number of investments are taking place in India by way of FDI and the foreign institutional investment route.
Developing countries and emerging economies have come increasingly to see FDI as a source of economic development and modernisation, income growth and employment. Since 1997, India has attracted approximately $42 billion of FDI in various sectors, with approximately $5.5 billion invested in 2005 alone.
Private equity investments in India in the year ended 31 December 2006 amounted to approximately $7 billion (Source: Venture Intelligence India, Roundup: Annual 2006, Private Equity Online 2006), as illustrated by the following chart.
Size of Indian Private Equity Market
4.00 3.00 2.00 1.00 0.00 0
Source: Venture Intelligence India, Roundup : Quarterly July–September 2006 and Annual 2006, Private Equity Online 2006 The typical size of private equity investments in India has increased from approximately $7 million during the period 2000-03 to approximately $16.5 million during the period 2003-06.
The Indian private equity market is still at a comparatively early stage of development, with Indian companies receiving almost no private equity or venture capital funding a decade ago. Private equity investment in the Indian market began to develop in the late 1990’s prompted by the growth of India’s information technology companies and the simultaneous dot-com boom in India. However, as a result of robust economic growth, a significant increase in foreign exchange reserves and government reforms, the opportunity for private equity investment in other sectors has become apparent. For example, the proportion of private investments in India outside the information technology sector is estimated to have increased from around 50 per cent. in 2003 to over 75 per cent. in the first half of 2006. The Directors believe that this has prompted many of the funds operating in India to launch second or third funds on a bigger scale and to widen the investor base to international, institutional and private equity investors.
The following chart shows an overview of the Indian private equity market.
Private equity in India – Landscape CVC Asia Int. Players with Indian presence
In 2005, private equity funds and venture capital firms focused on India realised exits in 42 companies of which 17 were through IPOs and four were through mergers and acquisitions or secondary sales worth over $500 million each.
Investment strategy The Directors have taken the view that the most attractive segment for the Company in India is “growth capital”. Growth capital is defined by the Directors as companies that are profitable, with robust balance sheets and in which growth is driven by demand from the buoyant Indian economy, rising disposable incomes and rapidly growing exports.
The Company intends to invest in a diverse portfolio of companies across India through its investments in Evolvence India Fund, Evolvence India Life Sciences Fund as well as through Direct Investments. It is anticipated that once funds are fully invested, the Company will have an interest in a balanced portfolio of investments with a wide sectoral and regional spread in India and varied financial characteristics.
The Company has entered into Subscription Agreements and, conditional on Admission, the Company will be committed to invest approximately 80 per cent. of the Investible Funds in the Underlying Funds.
Following Admission, the Investment Manager proposes to source, through the Investment Advisors, Direct Investment opportunities which fall within the Company’s investment objectives. Further details on this may be found in Part III of this document. The Investment Manager will perform due diligence and negotiate what it considers to be satisfactory terms before recommending an investment to the Board.
Based on current Indian market conditions, and in the absence of unforeseen circumstances, the Investment Manager anticipates that the Investible Funds, including the amount allocated to Direct Investments, should be committed by EIH within three months of Admission, although there can be no guarantee of this. The Board will closely monitor progress and will consider all options for the Company based on its initial investment progress. Pending investment, the Investible Funds will be held as cash or invested in short term liquid investments.
Currency hedging The Directors do not intend to implement a foreign currency hedging policy and, accordingly, the value of the Company’s assets and the amount of profit available for distribution to Shareholders will be affected by movements in the US Dollar and Rupee exchange rates.
Company purchase of Ordinary Shares The Directors will have a general authority to repurchase up to a maximum of 10 per cent. of the Ordinary Shares in issue immediately following Admission. There is no present intention to exercise such general authority. Any repurchase of Ordinary Shares will be made subject to the laws of the Isle of Man (including the availability of distributable reserves) and within guidelines established from time to time by the Board (which will take into account the income and cash flow requirements of the Company). The making and timing of any such buybacks will be at the absolute discretion of the Board. General repurchases of Ordinary Shares will only be made through AIM for cash at prices below the Director’s estimate of the Net Asset Value per Ordinary Share where the Directors believe that such purchase will enhance Shareholder value. Such purchases will only be made provided the price to be paid is not more than the higher of: (i) 5 per cent. above the average of the middle market quotations for the Ordinary Shares for the five business days before the purchase is made; and (ii) the higher of the price of the last independent trade and the highest current independent bid at the time of purchase of Ordinary Shares.
As further described in Part IX of this document, the Company has passed a special resolution to reduce its share capital by way of cancellation of its share premium account. It is the Directors’ intention to apply to the Isle of Man High Court as soon as practicable following Admission to approve such cancellation and reclassify the share premium account as a distributable reserve, in order that the Company has distributable profits available, inter alia, to effect share repurchases.
Dividend policy The Directors currently intend for the Company to distribute a substantial portion of its distributable profits as dividends. The Directors expect that dividends paid by EIH during the initial few years following Admission will be lower, in absolute terms, than subsequent dividends, reflecting the time required for the Company to invest the Investible Funds and to realise investments. During the initial few years following Admission, the Company intends to distribute its distributable profits as dividends after making appropriate provisions for capital calls, expenses and other liabilities. Thereafter, the Company intends to make distributions sufficient to provide investors with a dividend yield of 6 per cent. per annum.
Risk factors Potential investors should consider carefully the risk factors set out in Part I of this document, together with all the other information set out in this document as well as their own circumstances, before deciding to invest in the Company.
Investment Process, Strategy and Historic Fund Performance EIH investment process EIH has appointed EIA as its investment manager. The Investment Manager intends to appoint the Investment Advisors in India, namely Evolvence Advisory Services Private Limited and Invascent Advisory Services India Private Limited. The Investment Advisors have teams based in New Delhi and Hyderabad.