Peregrine exposure pegged at $200 mn

The Hong Kong-based firm invested most of the foreign funds in India through the participatory notes issued by foreign individual investors to the OCB floated by Peregrine. This escaped SEBI’s scrutiny as the OCB was owned 60 per cent by NRIs and 40 per cent by Peregrine. This came under the investment norm for NRIs and OCBs issued by the Reserve Bank of India.

Participatory notes (PN) is considered as a vehicle which allows a foreign investor to hedge his risk as against the exposure he expects in a particular country. The PN mechanism will benefit from the price movement in a foreign country without having the shares in your own account.

PN in effect means participating in the price fluctuations of the stocks, and benefit from the same. Despite the fact that the issuance of PN is not considered illegal abroad, in the Indian context it is not considered as a legal transaction. However, in the Indian context the underlying shares could be bought over as an off market deal between two custodians. “Much will depend on moves to salvage Peregrine’s foreign operations. The survival of Indian operations will depend on the new buyer,” said a market source.

It may be recalled that Zurich Centre Investments, a unit of Zurich Group, abandoned a deal to subscribe for US$200 million worth of Peregrine convertible preference shares, leading to the collpase of Peregrine. The collapse of the deal scuppered a further injection of US$25 mn which First Chicago International Finance Corp had agreed to in return for a further issue of convertible preference shares. Meanwhile, Peregrine India is learnt to have approched financial institutions, especially UTI for buyout of stocks worth nearly Rs 20 crore.