Investor Issues
One year later, some Osian fund investors still await first tranche of their money

The fund’s head admits that there have been some bottlenecks in release of complete payments, but is confident that all investors will be paid in full

Even after a period of one year, there are still some investors who await their first tranche repayments for investments made in the Osian Art Fund. The first week of September is now the new date for payment.

"There are still a handful of investors awaiting their first tranche. We are in constant dialogue with them and finally hope to complete payment by the first week of September," Neville Tuli, chief advisor, Osian Art Fund, told Moneylife.

There are at least eight investors that Moneylife knows of, who have not received the first tranche of payments.

While the first week of September 2010 is the new date for the first tranche of payments, those awaiting their remaining payments will have to wait longer.

"Thereafter (after the payment of the first tranche) the second tranche redemption will occur. It has been a most difficult process but finally everyone will be paid in full," said Mr Tuli.

This is very much in contradiction to what Mr Tuli said at the launch of his art market journal last month. "Expectations in 2006 were naturally altered post-2008 for all investments - not just art. The first tranche of repayment to the unit-holders is complete. The second tranche will be completed by 20 July 2010," the website quoted him as saying last month.

The Osian Art Fund was a 36-month close-ended scheme launched in July 2006. It made a quiet exit and at that time company officials claimed the returns to be around 5% per annum. As ambiguity on the final net asset value continues, the investor is clueless about what the exact total redemption amount would be. As of July 2006, the fund's total corpus was Rs102.40 crore and it had 656 unit-holders across 39 cities.

Moneylife first reported on this fund last year on how it had failed to meet investor expectations with a mere 5% return. (See:

However, more issues related to the fund surfaced with investor complaints on delay in payments (

Subsequently, some investors were lucky to at least receive part payments of their total investment in the fund. ( However, some still wait to receive even a single rupee of the huge investments they had made in the fund.

Investors are now helpless as the fund was not even regulated by the Securities and Exchange Board of India (SEBI) or any other regulatory body. (See:


Personal finance Tuesday

Reliance MF revises exit load under Reliance Quant Plus Fund

Reliance Mutual Fund has revised the exit load structure under the retail and institutional plan of Reliance Quant Plus Fund. As per the revision, the exit load charge will be 1% of the applicable net asset value (NAV) if redeemed or switched out on or before completion of one year from the date of allotment of units. There shall be no exit load after completion of one year from the date of allotment of units.

The change in exit load shall be applicable on a prospective basis to all the transactions including systematic investment plan (SIP) and systematic transfer plan (STP) where registrations/enrollments have been done on or after effective date. Reliance Quant Plus Fund is an open-ended equity scheme with the investment objective to generate capital appreciation through investment in equity and equity related instruments.

Tata MF declares dividend under Tata Life Sciences & Technology Fund

Tata Mutual Fund has announced the declaration of dividend under the dividend option of Tata Life Sciences & Technology Fund. The record date is 20 August 2010. The face value of each unit is Rs10. The quantum of dividend will be Rs2 per unit as on the record date. Tata Life Sciences & Technology Fund is an open-ended equity fund. The investment objective of the scheme is to provide income distribution and/or medium to long term capital gains while at all times emphasising the importance of capital appreciation.

Kotak Mahindra Bank introduces Stock Ace

Kotak Mahindra Bank has introduced a new product called Stock Ace. Kotak Stock Ace provides individual customers the power of instant liquidity. It is an overdraft facility provided to the customers against their investments in marketable securities like equity shares, mutual funds, etc which are approved for lending by the bank. The Stock Ace is available to the customers through a current account. The facility ensures that the customers are charged interest only on utilised funds. Tenure of this facility can vary from a month to 36 months and can be renewed yearly.

Kotak Mahindra Bank hikes lending rates by 0.25%

Kotak Mahindra Bank has revised its lending rates upwards by 0.25%. Earlier, the bank lending rate was 15.75% which has now been increased to 16% with immediate effect. The bank has also increased its fixed deposit rates by a similar percentage point in various retail buckets up to one year.

ICICI Bank increases lending rates by 0.50%

ICICI Bank has increased its prime lending rate by 0.50% with effect from 18 August 2010. The revised rate will be 16.25% per annum as against 15.75% per annum at present. The bank has also increased its floating reference rate (FRR) by 0.50% for consumer loans including home loans. The revised FRR will be 13.25% per annum as against 12.75% at present. The fixed rate customers will not be impacted by the above increase and their contracted rates will remain unchanged.


Cairn deal: In whose interest?

The Cairn price is too expensive and Sesa Goa shareholders will suffer

Analysts have taken a negative view of the Vedanta takeover of Cairn India - both for Cairn and Sesa Goa. For Cairn the upside potential is limited. The open offer is too close to the market price and the business prospects are fully reflected in the stock price. The impact on Sesa Goa is negative as well.

Anil Agarwal, chairman, Vedanta Resources, is using the cash flow of Sesa Goa to fund the open offer which is not rewarding to Sesa shareholders. It is a typical empire-building move - good for the dominant shareholder but not necessarily for minority shareholders. Most analysts are urging investors to tender in their shares in the open offer. A key question that remains unanswered by most sector and industry experts -- why is Cairn PLC cashing out so early in the cash flow cycle? It has just started reaping the benefits of its investments in India.

Let's look at the deal first. The Vedanta Group will pick up 51% stake in Cairn India from Cairn Energy at Rs405/share. This includes Rs50/share (i.e., $1bn) as non-compete fee (Cairn Energy will not compete in India, Bhutan, Sri Lanka and Pakistan or poach senior management for three years).

Sesa Goa in which Vedanta has a 57% stake, will make a 20% open offer (possibly in October) to Cairn India's minority shareholders at Rs355/share. If the open offer is not fully subscribed, Sesa will purchase shares from Vedanta PLC to reach the 20% mark. In any case, Vedanta could tender shares in the offer to reduce its stake to 40%. The end result will be Vedanta PLC holding 31%-40% and Sesa Goa holding 20% in Cairn. Sesa will fork out $3 billion from its cash resources to fund the open offer, while Vedanta will look for debt.

Depending on how successful the offer is, Cairn Energy's stake will fall to a minimum of 40% but it has an option to raise this by 10% with two put-call options exercisable in July 2012 and July 2013 at Rs405/share. The Vedanta Group will shell out $8.5 billion-$11 billion by July 2013. Cairn UK holds 62% stake in Cairn India. Other major shareholders are Petronas at 15% (will be key in the success of the open offer) and LIC at 2.6%. Petronas invested $1.2 billion in Cairn - its investment value is now $1.8 billion.

According to analysts, the deal pegs Cairn India's enterprise value at around $16.5 billion and this implies a valuation of around $15/BOE (barrel of oil equivalent). The market has reacted mostly negatively about Sesa's use of its cash flow to fund the open offer. This is what Kotak told its institutional investors today: "Sesa's proposed acquisition of a 20% stake in Cairn India (CAIR) is value destructive. Not only has Sesa overpaid for CAIR, the utilisation of excess cash to fund group expansion plan/acquisition raises concern on shareholder friendliness. We compute value destruction of Rs35-58/share for Sesa Goa resulting from over-valuation of CAIR. A statement by the Sesa management about lack of growth opportunities to utilise excess cash does little to inspire confidence in the core business."

Possible regulatory issues:

* The difference in the price for the larger shareholders and minority shareholders
* The government may come in heavily since the deal involves transfer of natural assets from one entity to another
* It is possible that the government may use this as an opportunity to settle royalty and cess issues for the Rajasthan block before giving a regulatory okay for the stake sale.

Possible positives:

* Vedanta has revealed that there is an additional in-place resource potential of 7 billion BOE in the block in addition to the 6.5 billion BOE already disclosed by Cairn. This could propel oil production to 250-300kbpd - but to be honest, this is some way off
* Success in its eight other exploration assets - again, not a sure bet
* Open offer price revised to Rs405 for regulatory reasons. However, this also seems unlikely because the SEBI Takeover Code allows up to a 25% premium in non-compete fees without affecting the open offer price.


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