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Hedge funds seek closure of Venus Remedies

US-based hedge funds DE Shaw and Citadel Investment Group have filed a winding-up petition against Venus Remedies, after the Chandigarh-based company defaulted on a foreign currency convertible bond (FCCB) issue. New York-based DE
Shaw, which has invested in several Indian companies such as DLF Assets, and Chicago-based Citadel Investment subscribed to a $12-million FCCB issue of Venus Remedies in May 2006. The bonds came up for redemption on May 2 this year, but company failed to pay the investors.

This is the first time that an Indian company is slapped with a winding-up petition — a formal request to a court for the compulsory liquidation of a company — by FCCB investors.

“This is a case of wilful default by the company. It has money, but is not willing to pay bondholders. That is why we have filed the winding-up petition,” said an executive with one of the hedge funds.

Since the market price of Venus was much below the conversion price of Rs 437, investors did not want to convert it into shares, said the executive, requesting anonymity. The Bank of New York Mellon, the custodian for the FCCB issue, has filed the case in the Punjab and Haryana High Court in Chandigarh. Investors have also sought the court’s intervention to stop the company from paying dividends. The case will come up for hearing in October.

Venus is a profitable company with revenues of Rs 265 crore and a net profit of Rs 46 crore in 2008-09. The company had declared a 30% dividend on August 21, after it defaulted on the FCCB redemption. When contacted, Pawan Chaudhary, managing director, Venus Remedies, refused to comment.

Crisil had in February 2009 assigned a A- rating to Venus Remedies on its debt facilities, citing comfortable financial risk profile marked by healthy size of net worth and strong debt protection indicators. However, it was downgraded to C in May 2009, after the company failed to honour FCCB investors.

DE Shaw, which manages about $40 billion of assets globally, was the first hedge fund to get regulatory permission to operate as an FII in India, while Citadel Global is a $15-billion fund.

The court decision on Venus Remedies will be important, since FCCBs are unsecured instruments, and it can have a major impact on future FCCBs by Indian companies.Over $10 billion of FCCBs issued by more than 100 Indian companies are outstanding and will come up for redemption every month over the next two years. Many companies, such as Suzlon, have renegotiated the terms with FCCB investors, when they were not in a position to make payments.

Source: Economic Times

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