Dhir India Investments : Half Yearly Report

Dhir India Investments plc

Notes to the unaudited interim results

For the six months to 30 September 2011

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.

The Company was established as the holding company of the investment company Agate India Investments Limited (incorporated in Mauritius), which invests in distressed assets and distressed companies in India. The investments in distressed assets and distressed companies are made through Indian Special Purpose Vehicles ("SPVs") incorporated by Agate India Investments Limited.

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

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

The interim consolidated financial statements of Dhir India Investments plc as at and for the six months ended 30 September 2011 comprise of the Company and its subsidiaries (together referred to as the "Group").

The consolidated financial statements of the Group as at and for the year ended 31 March 2011 are available upon request from the Company's registered office at Top Floor, 14 Athol Street, Douglas, Isle of Man IM1 1JA or at .  

2          Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 March 2011.

These condensed consolidated interim financial statements were approved by the Board of Directors on 19 December 2011.

3          Significant accounting policies

The accounting policies applied by the Group in these condensed consolidated financial statements are the same as those applied by the Group in its consolidated financial statements for the year ended 31 March 2011.

No International Financial Reporting Standards (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.

4          Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these interim consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 March 2011 (see note 10).

5          Financial risk management policies

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 31 March 2011.

6          Taxation

The standard rate of income tax for companies in 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 recognisedstock exchange, it meets the definition of a "non-relevant company" and is therefore exempt from the distributable profits charge in India.

7          Segmental reporting

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

8          Management and performance fees

Management fee

Shiva Consultants Private Limited (the "Investment Manager") was entitled to a management fee of 1.8 per cent per annum of the NAV (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 Investment Manager had agreed to reduce the management fee from 2% to 1.5% in the comparative periods.

The NAV calculation of each financial year is based on 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.

Annual management fees charged during the period ended 30 September 2011 amounted to £203,852 (six months ended 30 September 2010: £204,646) and no fees were outstanding as at 30 September 2011 (31 March 2011: £nil).

Performance fee

The Investment 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 Investment Manager until
        the Investment 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
        Investment 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
        Investment Manager in the ratio 65:35.

Due to decrease in the fair value of investments, relative to their cost, no performance fee has been provided in these financial statements or those for the year ended 31 March 2011. 

9          Loss per share

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.

	Unaudited From 1 April 2011 to 30 September 2011		Unaudited From 1 April 2010 to 30 September 2010		Audited From 1 April 2010 to 31 March 2011
Loss attributable to equity holders of the Company (£'000)	(534)		(414)		(862)
Number of ordinary shares in issue	16,666,677		16,666,677		16,666,677
Basic loss per share (pence)	(3.20)		(2.48)		(5.17)

There is no dilutive earnings per share number shown as there are no share options in issue and the warrants have expired.

10         Available-for-sale financial assets

Investments in unquoted Indian incorporated investee companies are designated as available-for-sale financial assets and are carried at fair value in the statement of financial position. The Group has invested in the debt of identified distressed companies (secured by way of charges on the assets) with the intention of acquiring the assets of these companies.

The Group's investments in the underlying investee companies are as follows as at 30 September 2011:

Investments	Capital  invested	Fair value adjustment	Foreign exchange rate effect	Fair value
	£'000	£'000	£'000	£'000
Indirect investments
Turquoise Metals and Electricals Private Limited	1,850	536	(36)	2,350
Aquamarine Synthetics and Chemicals Private Limited	1,675	905	30	2,610
Triton Projects India Private Limited	1,032	(1,042)	10	-
Destination India Projects Private Limited	1,598	(1,512)	104	190
Cygnet Projects Private Limited	10,729	(5,876)	267	5,120
Direct investments
Lords Choloro Alkali Limited	1,108	(1,158)	50	-
	17,992	(8,147)	425	10,270

The movements in the fair value of the financial assets held by the above investee companies are as follows:

	Unaudited From 1 April 2011 to 30 September 2011	Unaudited From 1 April 2010 to 30 September 2010	Audited From 1 April 2010 to 31 March 2011
	£'000	£'000	£'000
Fair value brought forward	20,332	20,502	20,502
Additional investment	3	120	631
Refund from asset reconstruction company	-	-	(18)
Movement in fair value	(8,814)	(121)	611
Effect of foreign exchange fluctuations	(1,251)	(893)	(1,394)
Fair value at end of the period	10,270	19,608	20,332

Valuation methodology

The value of the Group's interest in the assets of the underlying investee companies had been determined by the Directors with the advice of an independent valuer. The value of the assets of the distressed companies is based on the Directors' best estimate of a fair value basis in a forced sale scenario. Physical assets of the distressed companies, against which the debts are secured, are valued by independent valuers and the fair value is discounted at appropriate rates taking into account costs to dispose the assets and time of realisationof the assets. Statutory liabilities which have a preference over secured debt, and resolution costs of between 1% and 10% (based on the valuer's opinion of the asset) of realisablevalue are deducted from the realisablevalue.Discounts are also applied based on the level of aggregation of debt achieved.

The investment in Lords Choloro Alkali Limited has been valued at nil due to current difficulties that the company is experiencing and the low liquidity of the shares.

11         Share capital

	No. of shares	Share capital	Share premium
		£'000	£'000
Ordinary shares of £0.10 each	16,666,667	1,667	21,355
	16,666,667	1,667	21,355

Theauthorisedshare capital of the Company is £10,000,000, divided into 100,000,000 Ordinary Shares of £0.10 each. The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's assets.

Warrants originally issued expired on 12 July 2009.

12         Exchange rates

The following exchange rates were used to translate assets and liabilities into the reporting currency at 30 September 2011:

UK Sterling: Indian Rupee	Closing rate	Average rate
For the period from 1 April 2011 to 30 September 2011	77.73290	74.15736
For the period from 1 April 2010 to 30 September 2010	70.96590	70.26219
For the period from 1 April 2010 to 31 March 2011	72.79040	71.41314

13         Related parties

Management arrangement

Alok Dhir and his associates are the significant shareholders of Shiva Consultants Private Limited (the Investment Manager) and a Director of Dhir India Investments plc. The management fee and performance fee arrangements are set out in note 8.

Legal services

Alok Dhir is also one of the partners of Dhir & Dhir Associates, the Company's lawyers in India. During the period the Company used the legal services of Dhir & Dhir Associates and incurred the following charges:

	Unaudited From 1 April 2011 to 30 September 2011	Unaudited From 1 April 2010 to 30 September 2010	Audited From 1 April 2010 to 31 March 2011
	£'000	£'000	£'000
Legal and professional fees	25	12	32
Balance outstanding at period/year end	30	21	19

Amounts were billed based on normal market rates for such services and were due and payable under normal payment terms.

Alchemist Asset Reconstruction Company Limited

One of the Directors of the Company, Alok Dhir, is also a director of Alchemist Asset Reconstruction Company Limited ("AARCL"). The SPVs have entered into transactions with AARCL for acquisition of various assets/units in respect of the companies in which investments have been made. AARCL also act as trustee of the various trusts.

Included in the total consideration paid by the Company for certain assets is an amount payable to AARCL in its capacity as an asset reconstruction company. The amount of the enhanced consideration payable to AARCL is noted below:

	30 September 2011	30 September 2010	31 March 2011
	£'000	£'000	£'000
Turquoise Metals and Electrical Private Limited	-	43	84
Aquamarine Synthetics and Chemicals Private Limited	-	10	20
Triton Projects India Private Limited	-	2	4
Destination India Projects Private Limited	-	-	-
Cygnet Projects Private Limited	-	63	124
Total	-	118	232

During the period, amounts were also payable to AARC in relation to administration services provided to the Group, as follows:

	30 September 2011	30 September 2010	31 March 2011
	£'000	£'000	£'000
Turquoise Metals and Electrical Private Limited	40	-	-
Aquamarine Synthetics and Chemicals Private Limited	-	-	-
Triton Projects India Private Limited	-	-	-
Destination India Projects Private Limited	-	-	-
Cygnet Projects Private Limited	67	-	-
Total	107	-	-

The following amounts remain payable to AARCL as at 30 September 2011:

	30 September 2011	30 September 2010	31 March 2011
	£'000	£'000	£'000
Turquoise Metals and Electrical Private Limited	256	183	234
Aquamarine Synthetics and Chemicals Private Limited	19	52	20
Triton Projects India Private Limited	13	13	14
Destination India Projects Private Limited	-	-	-
Cygnet Projects Private Limited	140	274	82
Total	428	522	350

Save as disclosed above, none of the Directors had any interest during the period in any material contract for the provision of services which was significant to the business of the Company.

Co-investment

During the period to 30 September 2011, Alok Dhir has in terms of the co-investment commitments along with Turnaround Consultants Private Limited and Sopan Securities Private Limited, which are some of his connected persons, co-invested with the Group's subsidiary Agate India Investments Limited in the following Group SPVs subsidiaries:

	Equity Holding (%)		Investment £'000
Turquoise Metals and Electrical Private Limited	25%		488.49
Aquamarine Synthetics and Chemicals Private Limited	25%		547.45
Triton Projects India Private Limited	5%		61.47
Destination India Projects Private Limited	5%		108.16
Cygnet Projects Private Limited	10%		1,016.76

Lords Chloro Alkali Limited

Alok Dhir is also a shareholder in Lords Chloro Alkali Limited. As at 30 September 2011, the Group has subscribed for 1.5 million equity shares at INR 60 per share in Lords Chloro Alkali Limited (see note 10).

14         Risks

In spite of the Company investing in diversified assets and industries, the investments are exposed to certain illiquidity and market risks as they are principally investments in assets and liabilities of distressed companies and unquoted equity securities. Further, investments in such companies are inherently difficult to value. In addition, the Company's operations are conducted in jurisdictions which generate revenue, expenses, assets and liabilities in currencies other than Sterling. As a result, the Company is subject to the effects of exchange rate fluctuations with respect to these currencies. The currency giving rise to this risk is primarily the Indian Rupee.

15         Responsibility statement

We confirm to the best of our knowledge:

a) the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting;

b) the interim management report includes a fair review of the information required by DTR 4.2.7 R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c) the interim management report includes a fair review of the information required by DTR 4.2.8 R (disclosure of related party transactions and changes therein).

Signed on behalf of the Board on 19 December 2011.