Canadian private equity fund Clairvest Group has reported a net loss of C$11.6 million (US$9.1 million) for first quarter of fiscal 2018, courtesy of potential losses in its investment in Indian online rummy company Ace2Three.
In April, the Toronto-based company and its partners acquired a majority stake in Head Infotech, the company that operates the online rummy site, for an estimated US$73.7 million. Clairvest’s portion of the investment reached C$22.9 million (US$17.96 million) in the form of compulsory convertible debentures and common shares.
Ace2Three, however, was shut down for nine days in June after the Indian state of Telangana announced a new ordinance outlawing betting and gambling through the internet. The ordinance covers games such as online matka, sports betting, poker and rummy in the state.
Clairvest said the ordinance resulted in a C$1 (US$0.78) per share of unrealized loss in Ace2Three.
“While Ace2Three remains profitable… Clairvest has determined that there have been a negative impact on the fair value of this investment,” Clairvest Group said in a filing. “Accordingly, the carrying value of the equity investment made in Ace2Three was reduced by 50 percent or C$15.8 million [US$12.39 million].”
The Andhra Pradesh and Telangana High Court allowed Ace2Three, along with fellow rummy sites Rummycircle and Junglee Rummy, to reopen their business while the court is still deliberating the new gaming ordinance. Under the court order, rummy companies based in Telangana like Ace2Three could accept customers from outside the state, while continuing to prohibit players from within Telangana.
Clairvest said revenue from customers outside of Telangana make up approximately 60 percent of the Ace2Three’s overall revenue before it was temporarily shut down.
Currently, Ace2Three and other online rummy companies are challenging the validity of Telangana’s decision, arguing that the unconstitutional ordinance violates the sites’ “fundamental right to carry out trade and commerce.”
In response, the state government issued a fresh decree amending the Telangana State Gaming (Amendment) Ordinance, 2017, to add the words “online gaming with stakes” to the definition of gaming as well as the general description of the term “gaming.”
More importantly, the decree deleted Section 15 of the state’s Gaming Act of 1974, which exempts “games of skill” from the ambit of gambling and replaced it with a new provision authorizing the Telangana government “to issue an order within two years from the issue of the Ordinance to remove difficulties in implementation of the Gaming Act.”
