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US hedge fund opposes Hirco promoters’ merger move

QVT Financial, a US-based hedge fund which controls a minority stake in Hirco — a real estate fund floated by the Hiranandani group on the Alternative Invesment Market (AIM) of London — has opposed the merger resolution proposed by the Hiranandanis.

The merger, if implemented, would take the Hiranandani group’s holding in Hirco to over 50% from the existing 20%. Hirco got listed on the AIM in 2006 and raised more than £380 million for investing in residential properties in India.

Niranjan Hiranandani, chairman of the Hiranandani group, declined to comment on the issue. An EGM of Hirco, to be held on January 16 in Mumbai, will discuss the proposal. Many foreign funds own large stakes in Hirco, including the UK’s Standard Life (13.11%), HSBC Holdings (10.13%), Laxey Partners (10.05%), Halbis Capital (7.84%), Fortress investment (4.57%) and Lazard AM (4.57%). The Hiranandani group is not listed in India.

It is believed that several shareholders are likely to oppose Hirco’s proposal to merge two real estate projects — one in Panvel near Mumbai and another in Chennai (owned by the group) — with the company.

In a statement issued to PRNewswire, QVT said that it believes the resolutions are economically damaging to shareholders. They will dilute shareholder voting power and may remove the company from regulatory oversight.

At the same time, QVT believes, the resolutions are favourable to the company’s management — the Hiranandanis — who will have a financial windfall and voting control of the company. QVT is also concerned that the timing and remote location of the EGM may disenfranchise shareholders.

On December 18, the Hirco board had approved the acquisition of two SPVs owned by the Hiranandanis. These two companies are carrying out township developments at Panvel (near Mumbai) and Chennai.

The financial terms of the proposed resolutions are, in QVT’s view, extremely detrimental to shareholders as they both eliminate the preferred position of the shareholders and appear to commit shareholders to overpay the Hiranandani group for its interests in the company’s investments. Shareholders are currently entitled to receive their full cost basis, plus a 12% compounding dividend.
before the Hiranandani group receives any proceeds distributed from its interests in any company investment.

Source: Economic Times

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