No borders for risk

How’s this for an investing opportunity—you can buy shares of listed as well as unlisted mid-cap and small-cap companies outside India with a minimum investment of Rs 5 lakh (but within the Reserve Bank of India’s prescribed limit of $200,000 per year); and, for good measure, you don’t need to pay an advisory fee. Well, that’s a service being offered by the recently-formed KZen Equities. The Pune-based firm calls this “private financing”, a concept that’s popular in developed markets. “Our focus is to enable Indian investors to diversify their portfolio globally,” says Kiran V. Patel, Chairman, KZen Equities.

He says RBI regulations have permitted overseas equity investments for some time, but actual investments have not really picked up due to a lack of India-based service providers in this area. There is a possibility of high returns via this route, says John Moore, a former banker with Barnings Bank, and now Managing Director & CEO, KZen. Here’s how: KZen gets a mandate from companies outside India to raise funds for them, and gets a fee for this service. KZen in turn approaches investors with an appetite for taking risk in such companies. For instance, it claims to already have mandates from three companies. “One is a US-listed telecom company with business in China; another is a Brazilian firm operating in biofuels,” says Moore without disclosing the names of these companies.

The US-listed company’s stock is currently trading at 50 cents; to get listed on a bigger exchange in the US, it needs to hit a minimum price of $3. Moore expects this stock to reach that level after raising the requisite funds from investors.

“Our team will look for such investment opportunities that have the potential to multiply over the years,” says Hemant Thorat, President (Sales & Operations), KZen. The company says it will help investors get regular updates and even meetings with the managements of investee companies.

The opportunity, of course, has some dangers attached. There is an exit risk in an unlisted company in case it does not get listed in a few years; and there’s the standard risk that comes with investing in midcap and small-cap companies. On the regulatory side also, there could be some questions raised as KZen is not registered with the Securities & Exchange Board of India as an advisor.

It is regulated by the RBI for repatriation of foreign exchange. “We follow all the know-your-clients norms and other norms as prescribed by the regulators,” says Rahul Patel, Chief Investment Officer, KZen.

—Virendra Verma