Kubera Cross-Border Fund Limited. Interim Results for the six-month period ended 30 June 2013

Transcription

1 24 July 2013 Kubera Cross-Border Fund Limited Interim Results for the six-month period ended 30 June 2013 Kubera Cross-Border Fund Limited (the Fund ) (LSE/AIM: KUBC) has issued its un-audited interim results for the six month period 1 January 2013 to 30 June Electronic and printed copies of the interim report will be sent to shareholders shortly. Copies of the report will be available, free of charge, from the offices of Grant Thornton Corporate Finance, 30 Finsbury Square, London EC2P 2YU, and will be available at the Fund s website About Kubera Cross-Border Fund Limited Kubera Cross-Border Fund Limited is a closed-end investment company incorporated in the Cayman Islands and traded on the AIM market of the London Stock Exchange. The Fund makes private equity investments in cross-border companies, primarily in businesses that operate in the US-India corridor. The Fund s investment manager, Kubera Partners, brings a strong track record of investing in or managing such businesses. Several of the Fund s portfolio companies also benefit from business activities in the growing Indian domestic market. For further information on the Fund, please visit For more information contact: Kubera Partners, LLC (Investment Manager of Kubera Cross-Border Fund Limited) Ramanan Raghavendran, Managing Partner info@kuberapartners.com Numis Securities Limited (Broker) David Benda, Managing Director Tel.: +44 (0) d.benda@numis.com Grant Thornton Corporate Finance (Nominated Adviser) Philip Secrett, Partner/ David Hignell, Manager/ Jamie Barklem, Executive Tel.: +44 (0) philip.j.secrett@uk.gt.com IOMA Fund and Investment Management Limited (Administrator, Registrar & Secretary) Philip Scales, Director Tel.: +44 (0) Philips@iomagroup.co.im

2 Disclaimer: This announcement may contain certain forward-looking statements with respect to the financial condition, results of operations and business of the Fund and its portfolio companies. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Fund or its portfolio companies actual performance to be materially different from any future performance expressed or implied by such forward-looking statements. Such forward-looking statements are based on assumptions regarding the Fund and its portfolio companies present and future business strategies and the political and economic environment in which they operate. Reliance should not be placed on these forward-looking statements, which reflect the view of Kubera Partners, LLC as of the date of this release only.

3 CHAIRMAN S STATEMENT On behalf of the Board of Directors, I am pleased to present the interim report and financial statements of Kubera Cross-Border Fund Limited (the Fund or Company ), for the six month period ended 30 June Distributions The Board announced on 10 June 2013, a distribution of capital of US$ 3,292,029, pro rata to all shareholders. The distribution consisted of a payment of US$ 0.03 per ordinary share ( share ) paid in cash from the Fund s share premium account on 24 June Taken together with prior distributions of US$ 0.28 per share in October 2010 and US$ 0.02 per share in July 2012, the Fund has thus far distributed US$ 0.33 per share. NAV and Discount The value of the Fund s net assets decreased from US$ 90.4 million to US$ 75.9 million during the six month period, which ended on 30 June The Fund s net asset value ( NAV ) per share decreased by 16% from US$ 0.82 to US$ 0.69 between 31 December 2012 (audited) and 30 June 2013 (un-audited). The decrease in NAV is primarily attributable to the capital distribution, the depreciation of Indian Rupee vis-à-vis the US Dollar, which is the denomination of the Fund, and a decrease in public equity market valuations, which are an input taken into account in establishing the value of equity interests in the Fund s portfolio which are publicly traded securities. The Fund s share price decreased by 2% from US$ 0.49 as at 31 December 2012 to US$ 0.48 as at 28 June The discount of the Fund s share price to NAV decreased from 40% as at 31 December 2012 to 31% as at 28 June EGM At the Extraordinary General Meeting of the Company held on 17 January 2013, shareholders passed an ordinary resolution regarding the future of the Company, resolving that (a) the Fund should not continue in existence as presently constituted; and (b) the investment objective and policy of the Fund be changed to seek realisation of its portfolio of investments in the ordinary course of business and to return the net proceeds of all such realisations to Shareholders, following which, the Company will be wound-up. The Fund will make no new investments, except follow-on investments in existing investee companies. This change in investment objective and policy will not result in an immediate or accelerated sale of the Fund's portfolio of investments. Investments will only be realised when, in the opinion of the investment manager, Kubera Partners LLC (the Manager ), appropriate opportunities are presented. Given the co-investment made by members of the Manager alongside the Fund in each of the Fund s investments, the Manager s interests are aligned with shareholders. On behalf of the Board of Directors, I would like to thank shareholders for their continued support regarding the future direction of the Company.

4 On 17 January 2013, the Company also announced the resignations of Michel Casselman, Pravin Gandhi and Kumar Mahadeva from the Board. I also wish to express the Board s sincere thanks to Michel, Pravin and Kumar for their invaluable advice and assistance as board members during their tenure. Portfolio Valuations The Fund s financial statements are prepared in accordance with US GAAP. The valuations of investments are reviewed and approved by the Audit Committee of the Board on a quarterly basis. All investments are recorded at estimated fair value, in accordance with SFAS 157 that defines and establishes a framework for measuring fair value. The NAV is calculated on this basis. The methodology underlying the Fund s investment valuations is consistent with previous periods. Change of Administrator and Amendment to Investment Management Agreement On 10 June 2013, the Fund announced that it had appointed IOMA Fund and Investment Management Limited ( IOMA ) as administrator, registrar and company secretary. IOMA will work closely with Cim Fund Services Ltd in Mauritius, which will continue as administrator and secretary of Kubera Cross-Border Fund (Mauritius) Limited, a subsidiary of the Fund, and will continue to assist in providing administrative services to the Fund and its other subsidiaries. The Fund has also amended the terms of the investment management agreement entered into with the Manager, reducing the investment management fees payable to the Manager by the amount of the administration fees payable to IOMA. Closing Remarks Further detailed information on investments, quarterly NAVs and other material events relating to the Fund are available through news releases made to the London Stock Exchange available on under ticker KUBC, through the Fund s website at and in the Manager s quarterly newsletter. Martin M. Adams Chairman

5 INVESTMENT MANAGER S REPORT Indian Economy and Market Review 1 India s annualised economic growth during the last quarter of the Financial Year ( FY ) stood at 4.8%, a marginal improvement over the corresponding previous quarter growth of 4.7%. However, growth fell considerably compared to 5.1% in the same quarter last year. Over the past year, global economic activity has slowed down and risks remain elevated due to sluggish external demand, the uncertain political situation, significant Rupee depreciation, high interest rates and lack of significant fresh long term non-portfolio capital investment into India. However headline wholesale price index inflation eased during May 2013 to 4.7%, lower than an average of 7.4% during FY Foreign direct investment inflows during the period of January 2013 to March 2013 fell by 6% to US$ 5.5 billion compared to US$ 5.8 billion in the same period of Foreign Institutional Investors ( FIIs ) are increasingly adopting a risk adverse attitude to emerging markets. As a consequence, FIIs have been selling across markets and withdrawing money from India (primarily in the debt segment) and other emerging markets. For the period January 2013 to June 2013, Indian equity markets witnessed a net inflow of US$ 13.5 billion, whereas Indian debt markets saw a net outflow of US$ 1.2 billion in Indian markets. In order to attract further foreign capital in the country, the Reserve Bank of India enhanced the ceiling for investments by FII in government securities and corporate bonds by $5 billion each. The combined cap on domestic debt now stands at $81 billion. The BSE Sensex (which comprises 30 stocks) decreased marginally during January to June 2013, falling by 1% and ending at 19,396 points during the period. During the same period the midcap index (NIFTY Midcap) fell drastically by 21%. The most significant development has been the movement in the exchange rate. The Rupee depreciated by 9% against the US dollar during the first half of calendar year This is primarily due to sell-offs by foreign institutional investors. Portfolio The Investment Manager remains closely engaged with the Fund s portfolio companies on a range of strategic issues. Details on the Fund s portfolio companies performances follow. Kubera Partners LLC Investment Manager 1 Sources: Reserve Bank of India, BSE India, Securities and Exchange Board of India, Bloomberg & others

6 KUBERA CROSS-BORDER FUND LIMITED Consolidated statement of assets and liabilities as at 30 June 2013 (Stated in United States Dollars) Notes 30 June June 2012 (unaudited) (unaudited) Assets Investments in securities, at fair value 2(c) 71,430,118 95,373,978 Loans to portfolio companies 2(d),11 5,171,566 5,171,566 Cash and cash equivalents 2(g),6 6,426,219 6,977,174 Interest and dividend receivable 2(d),2(k) - 128,283 Prepaid expenses 77,156 73,788 Total assets 83,105, ,724,789 Liabilities Accounts payable 370, ,577 Tax liability (net) 2(i),8 - - Total liabilities 370, ,577 Net assets 82,734, ,437,212 Analysis of net assets Capital and reserves Share capital 7 1,097,344 1,097,344 Additional paid-in capital 7 111,886, ,373,109 Accumulated deficit (36,985,561) (19,926,979) 75,998,177 98,543,474 Non-controlling interest 9 6,736,624 8,893,738 6,736,624 8,893,738 Total shareholders' interests 82,734, ,437,212

7 KUBERA CROSS-BORDER FUND LIMITED Consolidated schedule of investments as at 30 June 2013 (Stated in United States Dollars) 30 June June 2012 (unaudited) (unaudited) Name of the Entity Industry Country Instrument Number of shares Number of shares Investments in securities (other than warrants) Cost Fair value % of net assets Cost Fair value % of net assets NeoPath Limited Investment holding company Mauritius Equity shares 18,284, , % - 100, % 18,284,615 Preferred 9,643,610-5,670, % - 16,574, % shares 18,540,679-5,770, % - 16,674, % Adayana, Inc. Education United States of America Series A (2007) convertible participating preferred stock 3,750,000 15,000,000 1,539, % 3,750,000 15,000,000 17,124, % Series B 1,250,000 5,000,000 7,310, % 1,250,000 5,000,000 7,310, % (2007) convertible preferred stock Common stock 16,667 50, % 16,667 50,001 9, % 20,050,001 8,849, % 20,050,001 24,443, % Essel Shyam Communication Limited Media services India Compulsorily convertible preference shares 5,555,056 12,208,914 25,143, % 5,555,056 12,208,914 19,167, % Equity shares 1,125,315 2,473,220 5,093, % 1,125,315 2,473,220 3,882, % 14,682,134 30,236, % 14,682,134 23,050, %

8 Ocimum Biosolutions (India) Limited Life sciences India Compulsorily 3,818,162 14,000,000 99, % 3,818,162 14,000,000 99, % convertible preference shares Equity shares 1,000 3, % 1,000 3, % 14,003, , % 14,003, , % Greenearth Education Limited Stationery products Singapore Convertible redeemable preference shares 455,172 20,000, % 455,172 20,000,000 2,269, % 20,000, % 20,000,000 2,269, % Synergies Castings Limited Automotive components India Compulsorily convertible cumulative preference shares 5,333,334 10,000,000 8,225, % 5,333,334 10,000,000 8,845, % Equity shares 10,543,614 16,333,556 16,261, % 16,333,556 17,487, % 10,543,614 26,333,556 24,487, % 26,333,556 26,333, % Spark Capital Advisors (India) Private Limited Financial services India Equity shares 55,079 1,500,000 1,500, % 55,079 1,500,000 1,587, % 1,500,000 1,500, % 1,500,000 1,587, % GSS Infotech Limited IT infrastructure India Equity shares 1,000,000 10,225, , % 1,000,000 10,225, , % 10,225, , % 10,225, , % Total investments in securities 106,794,632 71,430, % 106,794,632 95,373, % The accompanying notes form an integral part of these consolidated financial statements.

9 KUBERA CROSS-BORDER FUND LIMITED Consolidated statement of operations for the six month period ended 30 June 2013 (Stated in United States Dollars) Notes Six months ended Six months ended 30 June June 2012 (unaudited) (unaudited) Investment income Interest 2(d),2(k),12 61, ,280 61, ,280 Expenses Investment management fee 2(m),3 998,540 1,021,735 Carried interest 2(n),3 - - Professional fees 80,694 81,138 Insurance 51,213 49,375 Directors fees 5 42,463 69,860 Administration fees 30,483 18,250 License fees 8,463 10,077 Custodian fees 13,197 11,313 Brokerage 37,500 37,500 Corporate Tax - 48,282 Other expenses 79,742 19,089 1,342,295 1,366,619 Net investment loss before tax (1,280,830) (1,187,339) Taxation 2(i),8 - - Net investment loss after tax (1,280,830) (1,187,339) Realized and unrealized gain /(loss) on investment transactions Realized gain on investment in securities 2(c) 5,376,687 - Net unrealized loss on investments in 2(c) (16,108,576) (3,022,864) securities (10,731,889) (3,022,864) Net decrease in net assets resulting from operations (12,012,719) (4,210,203) Non-controlling interest (950,589) (262,966) Equity holding of parent (11,062,130) (3,947,237) (12,012,719) (4,210,203) The accompanying notes form an integral part of these consolidated financial statements.

10 KUBERA CROSS-BORDER FUND LIMITED Consolidated statement of changes in net assets as at 30 June 2013 (Stated in United States Dollars) Share capital Additional paid-in capital Accumulated deficit Noncontrolling interest Total As at 1 January ,097, ,373,109 (15,979,742) 9,156, ,647,415 Net decrease in net assets resulting from operations - - (3,947,237) (262,966) (4,210,203) As at 30 June ,097, ,373,109 (19,926,979) 8,893, ,437,212 As at 1 January ,097, ,178,423 (25,923,431) 8,180,158 98,532,494 Capital Distribution - (3,292,029) - (492,945) (3,784,974) Net decrease in net assets resulting from operations - - (11,062,130) (950,589) (12,012,719) As at 30 June ,097, ,886,394 (36,985,561) 6,736,624 82,734,801 The accompanying notes form an integral part of these consolidated financial statements.

11 KUBERA CROSS-BORDER FUND LIMITED Consolidated statement of cash flows for the six month period ended 30 June 2013 (Stated in United States Dollars) Six months ended 30 June 2013 Six months ended 30 June 2012 Cash flow from operating activities Net decrease in net assets resulting from operations (12,012,719) (4,210,203) Adjustments to reconcile net (decrease) / increase in net assets resulting from operations to net (cash used) in / generated from operating activities: Net unrealized loss on investments in securities 16,108,576 3,022,864 Realized gain on investment in securities (5,376,687) - Purchase of investment in securities (236,892) - Proceeds from sale of investment in securities 5,613,579 - Repayment of loans - 25,000 Change in operating assets and liabilities: Decrease / (Increase) in other assets (59,454) (120,362) (Decrease) / Increase in current liabilities (87,222) (122,335) 3,949,181 (1,405,036) Cash flow from financing activities Capital distribution to non-controlling interest shareholders (492,945) - Capital distribution (3,292,029) - (3,784,974) - Net change in cash and cash equivalents during the year 164,207 (1,405,036) Cash and cash equivalents at beginning of year 6,262,012 8,382,210 Cash and cash equivalents at end of year 6,426,219 6,977,174 The accompanying notes form an integral part of these consolidated financial statements.

12 KUBERA CROSS-BORDER FUND LIMITED Notes to the consolidated financial statements for the six month period ended 30 June 2013 (Stated in United States Dollars) 1. Organization and principal activity Kubera Cross-Border Fund Limited (the Fund ) was incorporated in the Cayman Islands on 23 November 2006 as an exempted company with limited liability. The Fund is a closed-end investment company trading on AIM market of the London Stock Exchange. The Fund makes private equity investments in cross-border companies, primarily in businesses that operate in the US-India corridor. The Fund is managed by Kubera Partners, LLC (the Investment Manager ), a Delaware limited liability company. The Investment Manager is responsible for the day-to-day management of the Fund s investment portfolio in accordance with the Fund s investment objective and policies and has full discretionary investment management authority. The Fund is a Limited Partner in Kubera Cross-Border Fund LP (the Partnership ), an exempted limited partnership formed on 28 November 2006, in accordance with the laws of the Cayman Islands. The primary business of the Partnership is to invest in, purchase and sell investments for the purpose of carrying out an investment strategy that is consistent with the strategy described in the Admission Document and Offering Memorandum of the Fund. Kubera Cross-Border Fund (GP) Limited, a company incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of the Fund, serves as the General Partner of the Partnership. The Partnership holds 100% ownership in Kubera Cross-Border Fund (Mauritius) Limited ( Kubera Mauritius ), a company incorporated in Mauritius. The primary business of Kubera Mauritius is to carry on business as an investment holding company. Kubera Mauritius holds 100% ownership in New Wave Holdings Limited, a company incorporated in Mauritius. The primary business of New Wave Holdings Limited is to carry on business as an investment holding company. Cim Fund Services Ltd. was the Administrator for the period 1 January 2013 to 14 May With effect from 15 May 2013, Fund appointed IOMA Fund and Investment Management Limited ( IOMA ) as the Administrator of the Fund. IOMA will work closely with Cim Fund Services Ltd in Mauritius, who will continue as Administrator and Secretary of Kubera Mauritius, and will continue to assist in providing administrative services to the Fund and its other subsidiaries. 2. Significant accounting policies The significant accounting policies are as follows: a. Basis of preparation The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP). US GAAP requires management to make estimates and assumptions that affect the reported amounts

13 of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, the consolidated results of operations during the reporting period and the reported consolidated amounts of increases and decreases in net assets from operations during the reporting period. Significant estimates and assumptions are used for, but not limited to, accounting for the fair values of investments in portfolio companies. Management believes that the estimates made in the preparation of the consolidated financial statements are prudent and reasonable. Actual results could differ from those estimates. Changes in estimates are reflected in the financial statements in the period in which the changes are made and if material, these effects are disclosed in the notes to the consolidated financial statements. The measurement and presentation currency of the consolidated financial statements is the United States dollar rather than the local currency of the Cayman Islands reflecting the fact that subscriptions to and redemptions from the Fund are made in United States dollars and the Fund's operations are primarily conducted in United States dollars. b. Basis of consolidation The consolidated financial statements include the accounts of the Fund and its wholly owned subsidiary, Kubera Cross-Border Fund (GP) Limited and its majority owned subsidiaries, Kubera Cross-Border Fund LP, Kubera Cross-Border Fund (Mauritius) Limited and New Wave Holdings Limited (together referred to as the Group ). All material inter-company balances and transactions have been eliminated. c. Valuation and security transactions Definition and hierarchy Securities are held in custody by Kotak Mahindra Bank Limited and Hong Kong & Shanghai Banking Corporation Limited. Security transactions are recorded on the trade date basis. The Group uses the weighted average cost method to determine the realized gain or loss on sale of investments. Investments are recorded at estimated fair value as at the balance sheet date. The Group follows ASC 820 Fair Value Measurements and Disclosures which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value of an investment is the amount that would be received to sell the investment in an orderly transaction between market participants at the measurement date (i.e. the exit price). ASC 820 establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. Investments measured and reported at fair value are classified and disclosed in one of the following categories:

14 Level I - Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded equity securities and are valued at the last closing price on a national securities exchange on the valuation date. As required by ASC 820, the Group does not adjust the quoted price for these investments even in situations, if any, where the Group holds a large position and a sale could reasonably impact the quoted price. Level II - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, are valued at prices for similar assets or liabilities in markets that are not active, or determined through the use of models or other valuation methodologies. Investments which are generally included in this category are publicly traded equity securities with restrictions and derivative contracts. Level III - Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair value for these investments is determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment. Due to the inherent uncertainty of these estimates, these fair value estimates may differ materially from the values that would have been used had a ready market for these investments existed. Investments that are included in this category generally are privately held debt and equity securities. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Investment Manager s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Valuation Group's valuation policy Securities listed on a stock exchange or traded on any other regulated market are valued at the last closing price on such exchange or market or, if no such price is available, at the mean of the bid and asked price on such day. If there is no such price or such market price is not representative of the fair market value of any such security, then the security is valued based on quotations readily available from principle-to-principle markets, financial publications, or recognized pricing services, or a good faith estimate of fair value is made in accordance with US GAAP. If a security is listed on several stock exchanges or markets, the last closing price on the stock exchange or market which constitutes the main market for such security is used. A discount from values of actively traded securities is taken for holdings of securities when there is a formal restriction that limits sale of the securities. Discounts for restricted equity securities from their market price ranges from 0% to 30%. When determining a discount to actively traded restricted securities, factors taken into consideration include the investee company s trading characteristics, the Group s ability to sell its position when the restriction expires, and the term of the restriction. The adjustment of the discount depends on the duration of the restriction.

15 In the event that a listed security has no such price or the market price is not representative of the fair market value, the security has limited marketability, or the security is unlisted, its fair value is determined by the Investment Manager, taking into account forward market comparable multiples, trailing market comparable multiples, transaction multiples, and discounted cash flow models. Inputs include trading values on public exchanges for comparable securities, historic, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. An appropriate discount is taken for holdings in securities where there is a risk associated with a lack of liquidity or marketability. A revaluation of these securities is accepted by the Group only upon majority approval of the independent directors of the Fund. Valuation process The Group establishes valuation processes and procedures to ensure that the valuation techniques for investments that are categorized within Level III of the fair value hierarchy are fair, consistent, and verifiable. The Fund designates the Investment Manager to oversee the entire valuation process of the Group s Level III investments. The Investment Manager is responsible for reviewing the Group s written valuation processes and procedures, conducting periodic reviews of the valuation policies, and evaluating the overall fairness and consistent application of the valuation policies. Valuations determined by the Investment Manager are required to be supported by market data, third-party pricing sources; industry accepted pricing models, or other methods the Investment Manager deems to be appropriate, including the use of internal proprietary pricing models. The following table summarizes the valuation of the Group's investments based on ASC 820 fair value hierarchy levels as of 30 June Total Level I Level II Level III Investments in securities 71,430, ,930-70,945,188 Total 71,430, ,930-70,945,188 The changes in the investments classified as Level III are as follows: Balance at 1 January ,842,269 Purchases during the six month period ended 30 June ,892 Sale proceeds received during the six month period ended 30 June 2013 (5,613,759) Transfers in (out of) Level III - Realized gains for six month period ended 30 June ,376,867 Unrealized losses for six month period ended 30 June 2013 (15,897,081) Balance at 30 June ,945,188 Unrealized losses included in earnings relating to investments held at 30 June ,897,081 The following table summarizes the valuation of the Group's investments based on the above ASC 820 fair value hierarchy levels as of 30 June Total Level I Level II Level III Investments in securities 95,373, ,974-94,459,004

16 Total 95,373, ,974-94,459,004 The changes in the investments classified as Level III are as follows: Balance at 1 January ,592,169 Purchases during the six month period ended 30 June Sale proceeds received during the six month period ended 30 June Transfers in (out of) Level III - Realized gains for six month period ended 30 June Unrealized losses for six month period ended 30 June 2012 (3,133,165) Balance at 30 June ,459,004 Unrealized losses included in earnings relating to investments held at 30 June ,133,165 Total realized and unrealized gains and losses, if any, recorded for the Level III investment is reported in net realized gain (loss) on investments in securities and net change in unrealized gain (loss) on investments in securities respectively, in the statement of operations. Gains and losses from investments, including those that result from foreign currency changes, are recorded in the consolidated statement of operations under net realized gains and losses on investments and net change in unrealized gains and losses on investments. Unquoted warrants have been recorded at fair value. Changes in fair value are reported in net change in unrealized gain (loss) on investments in securities, in the consolidated statement of operations. Unquoted warrants are derivative instruments which do not have an active quoted market price. The fair value of the warrants is estimated, using the Black-Scholes model, taking into account the terms and conditions upon which the warrants were granted. d. Loans, loans impairment and interest income recognition Loans are reported at their outstanding principal balances net of impairment. The portfolio consist of loans provided to subsidiaries of portfolio companies and bear interest at a market rate based on the borrower s credit quality, the term and face value of the loans. Interest is recognized over the life of the loans at the loan s effective rate of interest. The Group may require collateral for the loans. The Group has not and does not intend to sell these loans receivable. Net change in loans receivable are included in net cash provided by operating activities in the consolidated statement of cash flows. The allowance for doubtful loans account is the Group s best estimate of the amount of credit losses from the Group s loans. The allowance is determined on an individual loan basis if it is probable that the Group will not collect all principal and interest contractually due. The Group considers borrowers historical payment patterns, borrowers credit ratings as published by credit rating agencies, if available, borrowers business performance and general and industry specific economic factors in determining the borrowers probability of default. As per Para of ASC 310 on Receivables, the impairment is measured based on the present value of expected future cash flows discounted at the loan s effective interest rate or the fair value of the collateral if the loan is collateral-dependent. The Group does not accrue interest when a loan is considered impaired. When ultimate

17 collectability of the principal balance of the impaired loan is in doubt, all cash receipts on impaired loans are applied to reduce the principal amount of such loans until the principal has been recovered and are recognized as interest income thereafter. Impairment losses are charged against the allowance and increases in the allowance are charged to impairment loss in statement of operations. Loans are written off against the impairment allowance when all possible means of collection have been exhausted and the potential for recovery is considered remote. The Group resumes accrual of interest when it is probable that the Group will collect the remaining principal and interest of an impaired loan. Loans become past due based on how recently payments have been received. e. Foreign currency translation The Group's accounting records are maintained in U.S. dollars as follows: (1) the foreign currency market value of investments and other assets and liabilities denominated in foreign currency are translated at the prevailing exchange rate at the end of the period; and (2) purchases and sales, income and expenses are translated at the prevailing exchange rate on the respective date of such transactions. The resulting net foreign currency gain (loss) is included in the consolidated statement of operations. The Group does not generally segregate the portion of the results of operations arising as a result of changes in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of securities. Accordingly, such foreign currency gain (loss) is included in net realized and unrealized gain (loss) on investments. f. Buy back The Group repurchases its shares by allocating the excess of repurchase price over par value against additional paid-in capital. g. Cash and cash equivalents Cash and cash equivalents represent amounts held with the Group bank accounts and deposits held with banks having original maturity for a period of less than or equal to three months. h. Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. i. Income taxes The current charge for income taxes is calculated in accordance with the relevant tax regulations applicable to the Group. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the consolidated financial statements carrying amount of existing assets and liabilities and their respective tax bases and operating loss carry forwards. Deferred tax assets and liabilities are measured using prevailing tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated

18 statement of operations in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits of which future realization is not more likely than not. j. Expenses The Group bears its own expenses on an accrual basis including, but not limited to organizational costs, brokerage, custody, legal, accounting, audit and other operating and administrative expenses. k. Revenue recognition Dividend is accounted when the right to receive the dividend is established. Interest is recorded on a period proportionate basis. l. Fair value of financial instruments other than investment in securities The Group s investments are accounted as described in Note 2(c). The Group s financial instruments include other current assets, accounts payable and accrued expenses, which are realizable or to be settled within a short period of time. The carrying amounts of these financial instruments approximate their fair values. m. Investment management fees The Investment Manager is entitled to receive an aggregate investment management fee of two per cent per annum of the Fund's net asset value, to be paid quarterly in advance based on the published net asset value of the Fund of the previous quarter or an amount which is agreed by the Board of Directors of the Fund. n. Carried interest Under the terms of the Partnership Agreement, Kubera Cross-Border Incentives SPC Carried Interest SP, the Special Limited Partner of the Partnership is entitled to receive a carried interest from the Partnership equivalent to 20 per cent, of the aggregate return over investment received by the Partnership following the full or partial cash realization of an investment. The payment of the carried interest is conditional upon the last announced net asset value of the Fund prior to the date of a distribution as adjusted by adding back the value of any income or capital distributions made by the Fund to its shareholders, being equal to or greater than the Par Value. In addition, the carried interest payment is adjusted, up or down, by such amount as is required to achieve the position that, following such distribution, the aggregate cumulative amount of carried interest paid at the date of such distribution will equal 20 per cent, of the eligible carried interest proceeds (being the net realized gains of the Partnership to the date of such distribution reduced by the net unrealized losses). Eligible carried interest proceeds may not be less than zero.

19 3. Investment management fees and carried interest Management fees On 17 January 2013 and subsequently on 7 June 2013, the Board of Directors of the Company fixed the management fees for the years 2013 to Subject to Clause A below, the Company shall pay a management fee to the Manager which shall be: (a) US$1,997,079 for the period from 1 January 2013 to 31 December 2013 less the administration fee payable to IOMA for such period; (b) US$1,997,079 for the period from 1 January 2014 to 31 December 2014 less the administration fee payable to IOMA for such period; and (c) US$1,697,515 for the period from 1 January 2015 to 31 December 2015 less the administration fee payable to IOMA for such period, to be paid quarterly in advance. Clause A: If, at any time prior to 31 December 2015, the Net Asset Value is less than 15 per cent. of the Net Asset Value as at 1 January 2013, the Management Fee shall be varied by the Independent Board Members to either of the following: (a) 2 per cent of the Net Asset Value per annum (based on the Net Asset Value at the end of the previous quarter) less the administration fee payable to IOMA for such period; or (b) a fixed amount per annum to be determined by the Independent Board Members (which shall be adjusted to take into account the administration fee payable to IOMA). During the six month period ended 30 June 2013, the Fund paid US$ 998,540 (30 June 2012: US$ 1,021,735) as investment management fee. Carried interest During the six month period ended 30 June 2013, no carried interest is paid / payable (30 June 2012: Nil). 4. Sale of investments held by NeoPath Limited On 25 August 2010, NeoPath Limited (formerly Venture Infotek Limited), a portfolio company, has sold its 100% holding in Venture Infotek Global Private Limited, its wholly owned subsidiary to Atos Origin (Singapore) Pte Limited (Atos), a company incorporated and resident in Singapore, for a consideration of US$ 110 million. As part of the terms of the share purchase agreement, US$ million was paid to NeoPath Limited. On 21 September 2010, NeoPath Limited declared a dividend of US$ 0.26 per share amounting to US$ million, out of which US$ million was distributed as dividend to New Wave Holdings Limited. Out of this distribution, New Wave Holdings Limited has credited US$ million towards the cost of investment in NeoPath Limited and the balance of US$ million has been recorded as realized gain on sale of investment.

20 On 6 July 2012, NeoPath Limited realized partial release of Escrow and distributed the same by way of buyback of 3,520,382 preferred shares; pursuant to which the Group received US$ 3.52 million. The Group accounted for it as a realized gain on sale of investment in securities. In April 2013, NeoPath Limited entered into a settlement with Atos, the acquirer, (with respect to the monies lying in escrow that were subject to an arbitration process) and received US$ million as a settlement amount. NeoPath Limited distributed the same by way of buyback of 5,613,579 preferred shares; pursuant to which the Group received US$ 5.61 million. The Group accounted for it as a realized gain on sale of investment in securities. The only asset now left in NeoPath Limited is the withholding tax refund. Atos deducted withholding tax towards Indian income tax of US$ million and deposited with the Government of India. NeoPath Limited is in the process of claiming a refund of the withholding tax based on its position that the capital gains realized on the sale is exempt from tax in India under the relevant provisions of the India-Mauritius tax treaty. Consequently, based on the tax counsel opinion, the entire amount of US$ million has been considered as fully recoverable and the present value of the expected tax refund has been included in the fair value estimate of the investment in NeoPath Limited as at 30 June Directors fees and expenses The Fund pays each of its directors an annual fee of 20,000 and the Chairman is paid an annual fee of 25,000, plus reimbursement for out-of-pocket expenses incurred in the performance of their duties. The members of the Audit Committee are paid an annual fee of 2,000 and the Chairman of the Committee is paid an annual fee of 5,000. Mr. Raghavendran has waived his director fee as long as he is interested in the Investment Manager. The Fund does not remunerate its directors by way of share options and other long term incentives or by way of contribution to a pension scheme. 6. Cash and cash equivalents 30 June June 2012 Cash at bank 1,895, ,004 Time deposits 4,530,954 6,522,170 6,426,219 6,977, Share capital and additional paid-in capital Authorized share capital: 1,000,000,000 ordinary shares of $0.01 each 30 June June ,000,000 10,000,000

21 Number of Shares Share Capital Additional paid-in capital Total As at 1 January ,734,323 1,097, ,178, ,275,767 Capital distribution - - (3,292,029) (3,292,029) As at 30 June ,734,323 1,097, ,886, ,983,738 As at 1 January ,734,323 1,097, ,373, ,470,453 As at 30 June ,734,323 1,097, ,373, ,470, Income taxes Under the laws of the Cayman Islands, the Fund, Kubera Cross-Border Fund (GP) Limited and Kubera Cross-Border Fund LP, are not required to pay any tax on profits, income, gains or appreciations and, in addition, no tax is to be levied on profits, income, gains, or appreciations or which is in the nature of estate duty or inheritance tax on the shares, debentures or other obligations of the Fund and its Cayman based subsidiaries, or by way of withholding in whole or part of a payment of dividend or other distribution of income or capital by the Fund and its Cayman based subsidiaries, to its members or a payment of principal or interest or other sums due under a debenture or other obligation of the Fund and its Cayman based subsidiaries. Under laws and regulations in Mauritius, the Fund s majority owned subsidiaries, Kubera Cross-Border Fund (Mauritius) Limited and New Wave Holdings Limited, are liable to pay income tax on their net income at a rate of 15%. They are however entitled to a tax credit equivalent to the higher of actual foreign tax suffered or 80% of Mauritius tax payable in respect of their foreign source income tax thus reducing their maximum effective tax rate to 3%. Both subsidiaries have received a tax residence certificate from the Mauritian authorities certifying that they are residents of Mauritius, which is renewable on an annual basis subject to meeting certain conditions and which make them eligible to obtain benefits under the Double Tax Avoidance Treaty between Mauritius and India. ASC 740, Accounting for Income Taxes clarifies when and how to recognize tax benefits in the financial statements with a two-step approach of recognition and measurement. It also requires the enterprise to make explicit disclosures about uncertainties in their income tax positions, including a detailed roll-forward of tax benefits taken that do not qualify for financial statement recognition. There are no uncertain tax positions and related interest and penalties as of 30 June The Fund monitors proposed and issued tax law, regulations and cases to determine the potential impact to uncertain income tax positions. As at 30 June 2013, there are no potential subsequent events that would have a material impact on unrecognized income tax benefits within the next six months. 9. Non-controlling interest 30 June June 2012 Share capital 7,648,511 8,474,945 Accumulated share of (loss) / gain (911,887) 418,793

22 Total 6,736,624 8,893,738 Non-controlling interest is primarily composed of the partnership interests of Kubera Cross-Border Incentives SPC - Co-Investment Segregated Portfolio, a Cayman Islands company and an affiliate of the Investment Manager, in the consolidated affiliates. 10. Transactions with related parties A. The following table lists the related parties of the Group: Name Wijayaraj Anandakumar Mahadeva Ramanan Raghavendran Michel Casselman Martin Michael Adams Robert Michael Tyler Pravin Ratilal Gandhi Kubera Partners LLC Kubera Cross-Border Incentives SPC Carried Interest SP * Resigned w.e.f. 17 January 2013 Nature of relationship Director* Director Independent Director* Independent Director Independent Director Independent Director* Investment Manager Special Limited Partner of the Partnership B. During the period transactions with related parties are as disclosed below: 30 June June 2012 Investment management fees paid to Investment Manager 998,540 1,021,735 Expenses incurred by Kubera Partners LLC on behalf of the Fund 63,519 - Director fee and reimbursement of expenses paid to Michel 4,398 16,283 Casselman Director fee, audit committee member fee and reimbursement of 25,569 21,387 expenses paid to Martin Michael Adams Director fee, audit committee member fee and reimbursement of 19,677 19,803 expenses paid to Robert Michael Tyler Director fee and audit committee member fee paid to Pravin Ratilal Gandhi , Loans receivables Loans receivable as at 30 June 2013 are given below: Borrower name Sector Cost Date of loan Ocimum Biosolutions Inc (secured) Life Sciences 2,500,000 6 December 2010 Carrying rate of Date of maturity interest (% p.a.) December 2012

23 Synergies Castings USA Inc. (secured) Synergies Castings USA Inc. (secured) Synergies Castings USA Inc. (unsecured) Automotive Components Automotive Components Automotive Components Total 5,575,000 1,500,000 1 February ,000,000 1 February , March August August Repayment of $25,000 starting from Oct 2011 till Nov 2013 Loans receivable as at 30 June 2012 are given below: Borrower name Sector Cost Date of loan Carrying rate of interest (% p.a.) Ocimum Biosolutions Inc (secured) Synergies Castings USA Inc. (secured) Synergies Castings USA Inc. (secured) Synergies Castings USA Inc. (unsecured) Life Sciences Automotive Components Automotive Components Automotive Components Total 5,575,000 2,500,000 6 December ,500,000 1 February ,000,000 1 February , March 2011 Date of maturity December February February Repayment of $25,000 starting from Oct 2011 till Nov Interest income Interest income consists of the following: 30 June June 2012 Bank interest 1,520 2,715 Interest on loan 59, ,565 Less: withholding tax - (48,282) Net Interest Income 61, , Concentration of risks The Group's investment activities expose it to various types of risks, which are associated with the financial instruments and markets in which it invests. The financial instruments

24 expose the Group in varying degrees to elements of liquidity, market and credit risk. The following summary is not intended to be a comprehensive summary of all risks inherent in investing in the Group and reference should be made to the Group's admission document for a more detailed discussion of risks. a) Market risk Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market variables such as interest, foreign exchange rates and equity prices, whether those changes are caused by factors specific to the particular security or factors that affect all securities in the markets. Investments are typically made with a specific focus on India and thus are concentrated in that region. Political or economic conditions and the possible imposition of adverse governmental laws or currency exchange restrictions in that region could cause the Group s investments and their markets to be less liquid and prices more volatile. The Group is exposed to market risk on all of its investments. b) Industry risk The Group s investments may have concentration in a particular industry or sector and performance of that particular industry or sector may have a significant impact on the Group. The Group s investments may also be subject to the risk associated with investing in private equity securities. Investments in private equity securities may be illiquid and subject to various restrictions on resale and there can be no assurance that the Group will be able to realize the value of such investments in a timely manner. c) Credit risk Credit risk is the risk that an issuer/counterparty will be unable or unwilling to meet its commitments to the Group. Financial assets that are potentially subject to significant credit risk consist of cash and cash equivalents, investments in convertible loans and receivables. The maximum credit risk exposure of these items is their carrying value. d) Currency risk The Group has assets denominated in currencies other than the US Dollar, the functional currency. The Group is therefore exposed to currency risk as the value of assets denominated in other currencies will fluctuate due to changes in exchange rates. The Group s cash and cash equivalents are held in US Dollars. e) Liquidity risk The Group is exposed to liquidity risk as a majority of the Group s investments are largely illiquid. Illiquid investments include any securities or instruments which are not actively traded on any major securities market or for which no established secondary market exists where the investments can be readily converted into cash. Reduced liquidity resulting from the absence of an established secondary market may have an adverse effect on the prices of the Group s investments and the Group s ability to dispose of them where necessary