An Overview of Domestic and Overseas Markets CAPITAL

An Overview of Domestic and Overseas Markets CAPITAL MARKETS In House Congress, Mumbai At Grand Hyatt, April 29, 2008

Presentation Plan Avenues of raising capital in the domestic capital market Avenues of raising capital in overseas markets Legal framework and regulatory issues A comparative of overseas stock exchanges Factors influencing the capital markets

Avenues of Raising Capital for Indian Companies Domestic Stock Exchanges Initial Public Offering (“IPO”) Offer for Sale Public Issue by Listed Companies including Rights Issue Qualified Institutions Placement (“QIP”) Preferential Allotment

Investor Categories (25% minimum public shareholding) Qualified Institutional Buyers (QIBs) Retail Investors Non Institutional Investors

Legal Framework for Domestic Offerings Companies Act, 1956 Securities and Exchange Board of India Act, 1992 SEBI (Disclosures and Investor Protection) Guidelines , 2000 (“DIP Guidelines”) Securities Contracts (Regulation) Act, 1956 Listing Agreements with the Stock Exchanges The Depositories Act, 1996 Foreign Exchange Management Act, 1999 (“FEMA”)

Procedural Aspects Eligibility criteria for primary issuance (IPO or Offer for Sale) i. iii. iv. v. Rs. 3 Crores (Net Tangible Assets) in last 3 years Rs. 1 Crore (Net Worth) in last 3 years Distributable profits for 3 years in last 5 years In case of change of name, 50% revenues from activity suggested by new name Aggregate of all issues in one financial year not to exceed 5 times issuer’s pre issue net worth

Procedural Aspects Book Building Method 50% net offer to QIBs ; OR ‘Project’ has 15% participation from financial institutions/scheduled commercial banks of which 10% comes from appraisers AND 10 Crores minimum post issue face value capital; OR 2 years of compulsory market making post issue

Procedural Aspects Exemptions from eligibility criteria a banking company a corresponding new bank an infrastructure company (conditions apply) ▪ Project must be appraised ▪ Not less than 5% of the project cost must be from appraisers rights issue by a listed company

Procedural Aspects Pricing Free pricing of shares Issuer company free to fix face value of the shares offered subject to: ▪ If price of share is Rs. 500 or more, then face value can be less than 10 but must be more than Re. 1 ▪ If price of share is less than Rs. 500 then face value of share must be Rs. 10

Introduction of Fast Track Method (Introduced by SEBI in November 2007) Listed companies making a public offering Rights Issue SEBI approval of prospectus not required if: Issuer company is listed for last three years Average market cap is greater than Rs 10, 000 Crores 95% of investor grievances redressed (till last quarter) No SEBI proceedings pending Entire shareholding in dematerialized form

Procedural Aspects No outstanding Other Requisites for public offerings Credit Rating for share warrants IPO grading debt securities and financial instruments No partly paid up shares Means of finance Promoter shares lock-in Minimum promoter contribution Minimum 1000 prospective allottees

Preferential Allotment Issue of shares or of convertible securities by a company to a select group of persons under Section 81(IA) of the Companies Act, 1956. Conditions of preferential issue (Chapter XIII of DIP Guidelines) ▪ Pricing as per the DIP guidelines ▪ Continuous listing (Minimum public shareholding) ▪ Existing shares of proposed allottee(s) in demat form ▪ Lock in of pre-preferential allotment shareholding ▪ No sale and transfer any equity shares for past 6 months ▪ Non-transferability of instruments ▪ Allotment must be completed within 15 days

Qualified Institutions Placement Issue of shares or of convertible securities by a company to Qualified Institutional Buyers (“QIBs”) (Chapter XIIIA of DIP Guidelines) Eligibility: ▪ Equity shares listed for one year preceding the date of notice to shareholders ▪ Minimum public shareholding to be maintained Note: ▪ No placement to QIB who is promoter or related to promoter ▪ Pricing as per the DIP guidelines ▪ Non applicability of Chapter XIII of DIP guidelines

Qualified Institutions Placement Conditions: Minimum Number of allottees: 2, where the issue size is less than or equal to Rs. 250 Crores 5, where the issue size is greater than Rs. 250 Crores No single allottee shall be allotted more than 50% of the issue size. Transfer restriction for 1 year (except on a stock exchange) Minimum 10% allotment to mutual funds

Issue of Debt Instruments Credit rating required Debenture trustee must be appointed Debentures not to be issued for acquisition of shares or providing loan to any company belonging to the same group. (Not to apply to FCDs converting within 18 months) Company to create Debenture Redemption Reserve (“DRR”) Debentures to be redeemed as per offer document Offer document to specify the assets on which security is created and ranking of the charge Premium amount and time of conversion to be determined by issuer company and disclosed Interest rate on debentures to be freely determined by issuer company

Important SEBI Regulations/Guidelines SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997 (Takeover Code) SEBI (Prohibition of Insider Trading) Regulations 1992 SEBI (Bankers to an Issue) Regulations, 1994 SEBI (Merchant Bankers) Regulations, 1992 SEBI (Underwriters) Regulations, 1993 SEBI (Registrars to an Issue and Share Transfer Agents)Regulations, 1993 SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003

Proposals by SEBI New exchange for SMEs 21 days gap between closing and listing to be shortened to 7 days QIBs to pay 100% upfront for IPOs

Raising Capital Overseas Indian Companies can raise capital overseas by issue of: Depository Receipts Bonds Global Depository Receipts (“GDRs”) American Depository Receipts (“ADRs”) Foreign Currency Convertible Bonds (“FCCBs”) Foreign Currency Exchangeable Bonds (“FCEBs”) Euro Bonds Note: Indian companies listing overseas must either before or simultaneously list on the Indian stock exchanges

Legal Framework for Foreign Offerings Companies Act, 1956 SEBI DIP Guidelines Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme 1993 (“FCCB Scheme”) Issue of Foreign Currency Exchangeable Bonds Scheme, 2008 Foreign Exchange Management Act, 1999 (“FEMA”) Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 External Commercial Borrowing Policy (“ECB Policy”) Foreign Direct Investment Policy (“FDI Policy”)

Depository Receipts (“DRs”) DRs represent shares of an Indian company trading on a foreign stock exchange The DR holders are part of foreign holding in a company but unlike FDI, investors in DRs do not enjoy voting rights DRs of most Indian companies experienced a sharp fall due to market meltdown. However, recently the DRs have recovered and trading turnovers have improved. DRs have become popular because of two-way fungibility No prior approval of SEBI, RBI or government is required for issue of DRs No restrictions on the use of proceeds except investment in real estate and the stock markets

Foreign Currency Convertible Bonds Foreign currency convertible bonds are debt instruments which are convertible into equity of the company at a later point of time Both FDI and ECB policies are applicable Coupon rate must not exceed 300 basis points over SBI PLR RBI approval required for companies other than companies who can access ECB under automatic route and for all companies raising more than US$ 500 million Restriction on use of proceeds US$ 20 million can be raised for rupee expenditure Proceeds to be parked abroad till required in India Preferred by companies for raising funds for overseas expansions and acquisitions

Foreign Currency Exchangeable Bonds (“FCEBs”) FCEB Scheme was notified on February 15, 2008 A security offered by an issuing company and subscribed to by investors living outside India and exchangeable into equity shares of another company, which is called the offered company. The issuing company must be a part of the promoter group and must hold the equity shares being offered at the time of issuing FCEBs. The offered company has to be a listed company, which is engaged in a sector eligible to receive FDI and eligible for ECB.

Foreign Currency Exchangeable Bonds (“FCEBs”) RBI is still considering the instrument No guidelines for FCEBs issued by RBI yet RBI is unsure how FCEBs would work within existing framework of ECB Policy Lack of transparency regarding use of the funds according to RBI Issues on monitoring of the FDI cap on companies when bonds raised by one company gets converted into equity of another company.

Overseas Stock Markets Choice of stock exchange depends upon: Depth of the Market Availability of Funds Regulatory Requirements New York Stock Exchange (NYSE) ▪ NYSE has 11 Indian companies listed on NYSE. ▪ Positive: IFRS accounting norms permitted ▪ Negative: SOX compliance is very costly. Only very large companies therefore list on NYSE

Overseas Stock Markets NASDAQ ▪ Listing is expensive ▪ 3 Indian companies listed London Stock Exchange (LSE) (Main Market) ▪ Caters to large companies ▪ Has been a favorite with large Indian companies ▪ Regulatory requirements are stringent Alternative Investment Market (AIM) ▪ Constituted in 1995, London’s AIM has been very successful in attracting overseas companies/funds ▪ lower entry barriers ▪ a lighter touch on regulation and compliance ▪ comparative flexibility

Overseas Stock Markets Luxembourg Stock Exchange (Lux. SE) ▪ Traditional favourite ▪ Listing is expeditious ▪ Cost of raising funds at Luxembourg is lower, compared to NYSE or NASDAQ ▪ Compliance requirements are less stringent Singapore Stock Exchange (SGX) ▪ Listing is less expensive ▪ Has large appetite for certain sectors such as shipping ▪ Regional hub Hong Kong Stock Exchange (HKEx) ▪ Offers world-class listing platform ▪ Costs of listing and compliance are competitive

Overseas Stock Markets Dubai International Financial Exchange (DIFX) ▪ ▪ Set up in September 2005 Fast attracting attention especially of SMEs Expeditious listing Closer home and good liquidity Tokyo Stock Exchange (TSE) ▪ Japan is keen to promote TSE and Japanese Depository Receipts (“JDRs”) and attract foreign companies Asia Pacific Technology Exchange (APTEX) ▪ New Australian stock exchange with a focus on technology ▪ Plans to become fully operational by second half of 2008

Some factors that affect the Capital Market Economy of the Country Money Supply Interest Rate Corporate Results Global Capital Market Scenario Foreign Funds Inflow Strength/Weakness of the Local Currency

GDP, Inflation & Current Account Deficit/Surplus GDP growth in India: 2007 -08 – 8. 7% IMF 7. 9% GDP growth forecast for India: 2008 -09 Inflation scenario for India: 2008 -09 CMIE 5. 5% RBI comfort level (Feb ‘ 08) 5% CMIE 9. 5% IBs 7. 0 to 8. 4% Trade Deficit has widened over the past year

Money Supply, Interest Rate, Exchange Rate & Foreign Fund Inflow Money supply in the economy as on March 03, 2008 Interest Rates Exchange Rate Rs. /$ Year Rs. /$ 2006 -07 45. 28 2007 -08 Qtr 1 41. 25 Qtr 2 40. 54 Qtr 3 39. 47 Qtr 4 39. 83 2008 -09 39. 95 (Week ending Apr 18) Bank Lending Rates (2007 -08) 12. 75% to 13. 25% Rs. 39, 98, 887 Crores Representing a Y on Y increase of 21% Repo Rate: 7. 75% Reverse Repo Rate: 6% RBI purchased US$ 75. 4 billion from currency market in 2007 -08 till Feb ‘ 08 Total foreign funds inflow in 2006 -07 : US$ 29. 1 billion Total foreign funds inflow is 2007 -08 (till Feb ’ 08) : US$ 56. 4 billion

Domestic Capital Market Scenario Although there are negative factors like the gloomy global markets, pressure on the export market due to rupee appreciation, rising inflation rate on one hand, on the other hand India has a strong growth story Lets hope good times are ahead!

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