PACIFIC CURRENT GROUP LIMITED (PAC) SHAREHOLDER RAISES QUESTIONS ABOUT THE COMPANY'S INVESTMENT IN NEREUS
Announcement posted by ASI Mutual 12 Apr 2019
ASI MUTUAL WANTS MORE DETAIL ON WHO NEREUS IS AND WHY IT CANNOT FIND DETAILS ABOUT ITS MANAGEMENT
PACIFIC CURRENT GROUP LIMITED (PAC) formerly
TREASURY GROUP LIMITED (TRG)
SHAREHOLDER CORRESPONDENCE
12 April 2019
Mr Antony (Tony) Robinson
Director & Board Chairman
Pacific Current Group Limited
Level 29, 259 George Street
Sydney NSW 2000
Australia
+61 (0) 2 8243 0400
info@paccurrent.com
C.c. The Board of Directors
The Company Secretary - mackey@companymatters.com.au
Dear Mr Robinson,
PACIFIC CURRENT GROUP LIMITED’S INVESTMENT NEREUS - WE ARE NOT SURE WHICH NEREUS IT IS?
As you are aware, the writer and his Company are long-term shareholders in Pacific Current Group Limited (PAC). We currently control and speak for 1,307,262 shares in PAC.
We refer to PAC's half yearly accounts, issued to shareholders, for the period ended 31 December 2018 which refer to PAC’s investment in NEREUS. We also refer to previous disclosures such as the Company’s 2018 annual report issued by PAC and also reports issued by Treasury Group Limited (TRG) as it was previously known, which concern the investment in NEREUS.
We now turn you and the board to PAC’s disclosures surrounding its investment in NEREUS, news reports, comments, regulatory disclosures, and detail some questions below.
Preamble
Pensions & Investments - By Arleen Jacobius · December 14, 2010 Northern Lights Capital Group took a minority interest in Nereus Capital , an India-based private equity startup, said Andy Turner, Northern Lights chairman. Mr. Turner declined to reveal the size of his firm’s stake or other terms. Nereus Capital targets alternative energy companies in India, he said. It was founded by Managing Director Jonathan Winer, former director at D.E. Shaw’s India private equity practice.
“Northern Lights has an excellent understanding of the private equity business, and brings both investment capital and distribution support to our business,” Mr. Winer said in a news release.
VCCIRCLE - By Madhav A Chanchani 24 June, 2013. Nereus Capital’s India Alternative Energy Fund has received a fresh $100 million commitment from overseas limited partners (LP) for its maiden fund targeting $250 million. The investment comes from US-based Northern Lights Capital Group and US Agency for International Development (USAID), which will provide a 40 per cent ($40 million) credit guarantee for a $100 million limited partner commitment. This LP commitment is expected to be managed by Northern Lights, which invests in boutique investment managers. Nereus India Alternative Energy Fund will target companies engaged in the development, construction and operation of renewable and clean energy generation assets or those focussed on the deployment of clean energy technologies in India.
TRG/PAC Investment in Nereus
On 5 August 2014 Treasury Group Limited (TRG) announced, on the Australian Securities Exchange (ASX) Market Announcements portal - the merger with Northern Lights Capital Group (NLCG). The merger announcement included with the portfolio of assets provided by an investment in Nereus or Nereus Capital as was displayed within its logo.
1 September 2014 in an interview with Randy Diamond a reporter with the international investment magazine Pension & Investment , TRG’s then CEO Andrew McGill was quoted saying, the company being created from the merger of Treasury Group Ltd. and Northern Lights Capital Group LLC will double its AUM within five years. The same article reported Nereus Capital has USD$100 million in committed private equity capital from investors that has not yet been deployed.
i) Will PAC provide disclosure as to whereabouts of Nereus Capital’s USD$100m of committed capital, information which Mr. McGill provided to Pension & Investments (what happened to the USD$100M as we cannot find mention of this amount in any of the Company’s financial reports to shareholders?)
2 September 2014 (approx. one month after TRG announced it would merge with NLCG) it was reported in the magazine VCCIRCLE by Bhawna Gupta “Chinese solar panel maker Hareon partners Nereus Capital for projects in India”. Chinese solar panels manufacturer Hareon Solar Technology Co Ltd (Hareon) is partnering private equity firm Nereus Capital (Nereus) to develop over 150 MW of solar power projects in India over the next two years, as per a statement. This partnership follows Hareon’s announcement earlier last month that it has planned to establish a subsidiary in India to invest in photovoltaic projects in the country. Nereus’ India Solar Investment Trust seeks to generate stable yields by investing in utility-scale solar PV projects in India with creditworthy off-takers. The exact nature of the deal is not clear but it appears to be another platform investment deal now becoming popular in real estate where a PE firm ties with a developer for a string of projects. “India is a compelling and growing market for solar PV projects. By partnering with a leading Indian private equity firm, we are able to apply leading technology and end-to-end financing to efficiently develop and construct solar projects," said Jie Zhang, VP of global business development of Hareon. Founded in 2004, Hareon manufactures spanning wafers, cells, modules and PV power plants. The firm has more than 1.5 GW of annual cell capacity and more than 1GW of annual module capacity. Hareon has built and grid-connected more than 500 MW of PV power plants globally as of December 31, 2013. “We have reached an interesting inflection point for solar power in India, as a result of falling project costs and escalating electricity prices, it can now be cost-effective for certain industrial and commercial end-users of power in India to purchase solar power directly," said Jonathan Winer, MD, Nereus. Mumbai-based Nereus Capital is an affiliated company of $22.6 billion Northern Lights Capital Group, a multi-boutique asset management business, and seeks to invest in power generation, manufacturing of clean technologies and energy efficiency and infrastructure sectors. Nereus Capital’s India Alternative Energy Fund (NIAE) had last year received a fresh $100 million commitment from overseas limited partners (LPs) for its maiden fund targeting $250 million. This investment came from Northern Lights Capital Group and US Agency for International Development (USAID). In 2012, the fund closed a $20 million commitment from International Finance Corporation, the investment arm of World Bank. Nereus Capital has been looking to build a portfolio of 7-10 investments of $15-35 million each in India.
ii) What can PAC tell its shareholders about the 2 September 2014 media announcement concerning its investment in Nereus Capital, as there was no disclosures to TRG’s shareholders about those matters raised above?
25 November 2014 TRG completes joint venture with Northern Lights Capital Partners LLC (NLCP) and BNP Paribas Capital Partners LLC (BNP) and merger with NLCG.
12 December 2014 TRG announces with ASX it has raised $30 million via placement at $10.25 per share.
12 December 2014 TRG, in a subsequent announcement, lodges capital raising investor presentation with the ASX. (The presentation makes mention of the investment in Nereus Capital however there was no disclosure about the USD$100 million committed to NLCG or the USD$40 provided by the USAID organisation nor about the USD$20 million commitment from International Finance Corporation, the investment arm of World Bank.
iii) What can PAC tell its shareholders about these matters. Where do PAC’s shareholders find the disclosures?
20 January 2015 Australian Securities Exchange Market Announcements Via: E Lodgement Update regarding Share Purchase Plan On 12 December 2014. TRG raises $10 million at $10.25 per share from its retail shareholders under a share purchase plan (SPP) following completion of TRG’s supported $30 million share placement to institutional investors. TRG received applications from 2,156 of its smaller retail shareholders. All funds raised were used to subscribe for units in the Aurora merger Trust.
iv) Where do PAC shareholders find any additional disclosures which TRG may have been required to disclose if any, to its minority shareholders concerning the investment in Nereus or the performance of any of NLCG’s other investments merged with that of TRG post 25 November 2014?
21 August 2015, via the ASX, TRG announces joint venture opportunity with current affiliate, Nereus Capital. TRG/NL announces continued strategic support of current affiliate, Nereus Holdings, LP (“Nereus”), through investment in Nereus Capital Investments Pty Ltd (“NCI”), a direct Indian renewable energy infrastructure fund. As far as I am aware, Nereus Holdings LP has never been previously disclosed as a “current affiliate” of TRG.
v) Will PAC now disclose to shareholders the details concerning its investment in Nereus Holdings LP?
vi) Will PAC also provide disclosure as to the investment details and whereabouts of Nereus Capital Investments Pty Ltd (“NCI”) as mentioned in the ASX announcement?
10 March 2017 Aurora Trust (“AT”) consolidated accounts (the TRG/Northern Lights merger Trust accounts) are lodged with the ASX for the first time. NEREUS is recorded in the accounts as NEREUS CAPITAL, LLC. Notes in the accounts state also, “Pursuant to and in connection with the Aurora Share Subscription and Assignment Deed, dated 28 July 2015, by and between Hareon Solar Singapore Private Limited (Hareon), the Trustee, Nereus Capital Investments (Singapore) Pte. Ltd (NCI), and Nereus Holdings LP (Nereus), whereby the Trust agreed to make a contingent “Additional Contribution” to NCI of up to US$25,000,000, the Trust further agreed to place US$5,000,000 in an escrow account with the Hong Kong and Shanghai Banking Corporation Limited Singapore (the Escrow Account). The amounts can be drawn upon by NCI if and when certain prescribed thresholds with regard to annual revenues of NCI are not achieved. The Trust shall contribute additional amounts to the Escrow Account equal to any amounts drawn down by NCI pursuant to the previous sentence, so that the balance of the Escrow Account will be US$5,000,000. The account will be closed and all funds distributed to the Trust at the redemption of the Class H Shares of NCI, which are held by Hareon. NCI currently expects to redeem all Class H Shares in January 2018”.
vii) Will PAC disclose to its shareholders the complete contents, of their Aurora Share Subscription and assignment Deed, dated 28 July 2015, by and between Hareon Solar Singapore Private Limited (Hareon), the Trustee, Nereus Capital Investments (Singapore) Pte. Ltd (NCI), and Nereus Holdings LP (Nereus), whereby the, shareholders Aurora Trust, agreed to make a contingent “Additional Contribution” to NCI of up to US$25,000,000?
In a regulatory document lodged with Financial Industry Regulatory Authority, Inc (FINRA) by David Griswold PAC’s General Counsel and Chief Compliance Officer. His report states, on 24 November 2014 PAC acquired a >25% interest in an entity called NEREUS CAPITAL (CAYMAN) SMS LTD registered in the Cayman Islands.
viii) Will PAC disclose to its shareholders the relevant particulars of this investment?
ix) Will PAC provide an explanation as to why TRG shareholders were not told of this investment?
Mr Griswold also discloses to FINRA in the report, as mentioned above, that PAC on 24 November 2014 acquired >25% interest in NAIE Capital Management, LLC registered in Mauritius. The Offshore Leaks Database produced by The International Consortium of Investigative Journalists shows that Nereus Holdings LP is a shareholder in NAIE Capital Management LLC and that similarly, NAIE Capital Management LLC is a shareholder in Nereus Holdings LP? Further research was undertaken in India where we found that Nereus Holdings held a 51% controlling interest in a Company located in Mumbai called Nereus Consultants Pte Ltd (we have all this Company’s accounts from Corporate affairs India).
x) Will PAC provide full and proper disclosure to its shareholders the relevant particulars of these investments as they did or currently relate to their financial interests?
At page 9 of PAC’s 2018 annual financial report to shareholders it discloses, “Pacific Current Group Limited (the Company) is a company limited by shares and is incorporated and domiciled in Australia. The Company has prepared a consolidated financial report incorporating the entities that it controlled (the Group) during the financial year. The Company’s corporate structure at the date of the report was listed as a infographic table. The table lists NEREUS HOLDINGS LP as the PAC’s only investment in NEREUS and of which it says, “The Group holds an option which entitles the Group a fixed return on its investment and an option to participate in a revenue share. The infographic provides, No mention of NEREUS CAPITAL. No mention of NEREUS CAPITAL INVESTMENTS PTY LTD. No mention of NEREUS CAPITAL (CAYMAN) SMS LTD. No mention of NAIE CAPITAL MANAGEMENT LLC and No mention of NEREUS CONSULTANTS PTE LTD.
xi) Will PAC provide appropriate shareholder disclosures, having regard to the matters raised above which, by all accounts, appear quite concerning to us?
In the 2018 annual report having regards to the investment in NEREUS (i.e. the shareholders interest) it states at page 61, “3 Nereus In determining the fair value of the investment in Nereus, revenues were derived from applying terms of long-term power purchase agreements to the expected output of the solar power projects owned by Nereus. Power output was determined using PVSyst, the standard in solar output forecasting. Expenses are based on executed long-term operating and maintenance contracts for the service of the solar projects. With output/revenues and expenses effectively stable, varying the cost of capital demands of a potential acquirer is the primary variable for determining the value of Nereus. Applying a 10.7% cost of capital to the projected earnings of the projects, the total value of the Nereus is approximately US$20.70 million. After redemption of the preferred Class H Shares (US$20.7 million) the net proceeds available would be approximately zero. Under the agreement, the first US$1.25 million of any net proceeds are payable to Nereus management , if net proceeds are less than US$1.25 million then Nereus management would receive only the net proceeds. Any net proceeds above US$1.25 million will then go to the Company. Thus, the value of Nereus to the Company is
nil at 10.7%. Applying a 9.7% cost of capital would result in value in Nereus of approximately US$22.18 million. The proceeds a er redemption of the preferred Class H Shares (US$20.70 million) would be $1.45 million. Of these proceeds, Nereus management would receive the full value of the US$1.25 million and the Company would receive the remaining US$0.2 million ($308,215). Conversely, an assumed increase in cost of capital of a potential acquirer would reduce the net proceeds of a sale of the Nereus projects, and the value to the Company. For example, an 11.7% cost of capital would result in a value in Nereus of approximately US$19.39 million with the redemption of the preferred Class H Shares remaining at $US20.7 million the Company would have an obligation to fund an approximate US$1.31m ($1,768,935) to redeem the Class H Shares. The Group owns interests in Nereus, a private equity firm based in India focused on renewable energy assets, and in NCI. The fair value as at 30 June 2018 was based on net present value of the discount cash flows of this investment. Additional investments in Nereus during the year of $780,622 (2017: $7,647,988) were fully impaired.
xii) Will PAC tell shareholders what all that means to PAC’s shareholder financial interests (in plain english)?
xiii) Who is the NEREUS Management PAC speaks about. They are not listed in the Company’s disclosures to the ASX nor in the Company’s financial reports to shareholders. We cannot find anything on them. Who are they?
Pacific Current Group Limited and controlled entities ABN 39 006 708 792 Condensed consolidated financial report For the half-year ended 31 December 2018. Provision for estimated liability for Nereus Holdings LP (Nereus) $7,688,000. As at 31 December 2018, the assessed value of the investment in Nereus was determined to be approximately $22,997,000 (US$16,203,000) with the redemption of Class H Shares estimated to be $30,941,000 (US$21,800,000). The consolidated financial statements reflect a provision for the difference between the assessed value of the underlying assets in Nereus and the Class H shares of $7,900,000 (US$5,566,000). Capital contributions to Nereus between July - December 2018 $552,000.
xiv) The statements concerning Nereus from the PAC’s financial reports - Annual Report 30 June 2018 and from the Half Yearly financial report to 31 December 2018 don’t make sense. Will PAC properly disclose the details concerning the totality of PAC’s shareholder interest in Nereus, which seem to number in the many?
xv) Will the Company disclose to its shareholders the details of all of the Nereus’ and associated entities their Company has an interest in?
We look forward to receiving the answers to our shareholder questions, via the proper channels, being the ASX and recorded on the shareholder Company’s website.
Regards
Michael de Tocqueville
Investment Director
ASI MUTUAL
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