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P WEREM25 August 2012

Volume 1, Issue 14

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O www.freepressjournal.int's one hurdle less for privateequity (PE) players lookingfor exits from companiesere the promoter holding isy less or there is no identifi-e promoter.he Securities and Exchangeard of India (Sebi) has saidfunds can pitch in to fill the

ortfall in promoters' lock-inring initial public offeringsO). According to Sebi rules,omoters have to lock in animum of 20 per cent of thest-issue capital for threears.This measure was intro-ced in the mid-1990s, after

veral investors burnt their

hands by investing in compa-nies floated by fly-by-night op-erators, to ensure that the pro-moters had enough incentiveto stay with the company afterlisting. But this proved to be astumbling block for manytechnocrat-promoted, PE-backed start-ups, where thepromoter holding fell short of20 per cent. Now,Sebi has de-cided to allow registered PEand venture funds to con-tribute up to 10 per cent to thislock-in.

"To encourage professionalsand technically qualified entre-preneurs who are unable tomeet the requisite 20 per centcontribution by themselves,promoters will be allowed to

meet the same with the contri-bution of Sebi registered alter-native investment funds suchas SME funds, infrastructurefunds, PE funds,VCFs (venturecapital funds), etc,subject to acap of 10 per cent," Sebi said inits press release.

Prithvi Haldea, chairman andmanaging director,Prime Data-base, said: "There was an in-creasing realisation that anumber of technology compa-nies are started with externalfunding on day one. There is

further dilution through stage-I, stage-II funding,leaving pro-moters short of the lock-in ob-

ligations."According to him, the move

to allow funds to contribute tothis lock-in was sought by theindustry for long. "The PEs andVCs typically have a horizon ofthree to five years.They shouldnot have a problem with thelock-in," Haldea added.

In the past, Sebi had made afew special exemptions on acase-by-case basis. In 2010, aclutch of private equity andventure capital funds had tak-en the mantle of promoters inSKS Microfinance.Vikram Aku-la, the entrepreneur who pro-moted the firm, had only sixper cent stake in the company.Since this fell short of the regu-latory requirements, four enti-

ties - Sequoia Capital, Sand-stone Capital, Kismet Capitaland SKS Trust - took the mantleof promoters.

Experts said such commit-ment from funds would be aconfidence booster for retailinvestors who participate inIPOs.PE funds,which are com-mitted to taking the compa-nies to IPOs,will be happy do-ing it, said Deepesh Garg ofOzone Capital. "This will be afacilitating step, but it's notgoing to fire up the IPO mar-

ket," Garg added.

(Source:Business Standard)

Sebi extends a helping hand for PE-backed IPOs

More than 1.4 lakh com-panies in India are lyingdormant, with Maha-

htra accounting for thegest number of such enti-s, followed by Delhi anddhra Pradesh, the govern-

ent today said.Maharashtra, whose capitalumbai is known as theuntry's biggest financiald corporate hub, had a total35,664 dormant companieson August 20, 2012, while

the national capital had28,905 such companies onthis date.

Replying to a question inLok Sabha, Minister of Statefor Corporate Affairs RPNSingh said that the ministry

has launched a 'fast track exitmode' for getting these de-funct companies de-regis-tered. Asked about details ofthe registered companiesthat have been inactive anddormant for at least ten years,

the minister provided a stateand union territory-wise listof such firms.

Maharashtra and Delhi arefollowed by Andhra Pradesh(23,284), Tamil Nadu (16,373)and Gujarat (11,269) among

the ones with the highestnumber of dormant entities.

Among others, Karnatakahas 8,221 dormant compa-nies,Uttar Pradesh (5,316),Ker-ala (2,422), Punjab (2,413),Haryana (2,206), Rajasthan

(1,467), Madhya Pradesh(1,403),Chandigarh (1,233), Bi-har (1,019) and West Bengal(967). Lakshadweep account-ed for lowest number of suchcompanies (2), while otherswith small numbers included

Mizoram (6), Tripura (7),Arunachal Pradesh (11),Meghalaya (15), Manipur (18),Daman and Diu (25) and Na-galand (26).

(Source:The Economic Times)

Over 1.4 lakh cos dormant in India

www.freepressjournal.in

Move to allow shares held by funds as lock-in to helptart-ups with low promoter holdings

KEY TO IPO LOCKS

Promoters to lock in min-mum 20 per cent of post-ssue capital

Shares cannot be sold forhree years from IPO

Sebi-registered funds al-owed to share this bur-

den

Funds can lock-in up to0 per cent

Move to facilitate compa-

nies with low promoterholding

Uncertainty around buy-back arrangements hasput private equity (PE)

firms, struggling to exit theirinvestments, in troubled wa-ters.The number of buybacksso far this year has halvedcompared with 2010 num-bers, and the value of thesedeals has declined about 90per cent. This year, nine suchdeals accounting for $79 mil-lion have been recorded. In2009 and 2010, the buybackroute was a favourite amongPE investors: 15 buybackdeals, worth $535 million,were recorded in 2009, while23 deals, worth $1.5 billion,

were carried out in 2010. Lastyear, 21 buybacks deals wererecorded, and these amount-ed to $317 million.

Most private investmentshave a put-on or a pre-agreedbuyback clause in the share-holders' agreements. Throughthis option, investors' stakesare bought back by promotersat a pre-determined price, of-fering investors an assuredexit irrespective of marketconditions. However, in Octo-ber 2011, the Department of

Industrial Policy and Promo-tion (DIPP) issued an order

that any equity instrumentwith an option of assured re-turns - such as buyback,put orcall - would not be eligible forforeign direct investment andwould be considered debt in-struments. These would haveto comply with external com-mercial borrowing guidelines,the order added.

"Going by recent trends, PEsare not able to use the buy-back route for exits," saidAakash Choubey,partner Khai-tan & Co."This is largely due tothe fact that in certain cases,buybacks may be regarded bythe regulator as put optionsand would,therefore,be unen-

forceable." RBI pricing guide-lines state that if buyback iscarried out by an unlisted com-pany,the buyback price cannotbe more than the price arrivedat by the discounted cash flowmethod.

In case of listed companies,the pricing has to be compli-ant with Sebi's pricing norms.DIPP had withdrawn the orderafter a month, following stiffopposition. But uncertaintystill looms over the put optionclause.

(Source: Business Standard)

REGULATORY ISSUES POSEHURDLE ON BUYBACK ROUTE


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P WEREM O2


Indian workplaces havebecome an interestingblend of three genera-

ions -the business leadersand CEOs are BabyBoomers (born between

946 and 1964), manage-ment teams and seniorprofessionals are Gen Xborn between 1965 and980) while youngsters are

Gen-Y (born between981and 1995).This generation gap has

ed to differences in com-munication-styles, mind-sets,motivational tools anduse of technology, leadingo challenges at the work-

place. To gain a better un-derstanding, let's evaluatehe three generations onhe following parameters:Achieving results:

Boomers are competitiveand like putting in longhours at the office, evenworking on weekends if

needed; Gen X likes towork independently andare always trying to strike abalance between theirwork and personal life; GenY prefers sharing ideaswith virtual teams andpeople across the globe.

Clearly, companies thatfocus on the end result and

offer flexibility (e.g.telecommuting, videocon-ferencing) are bestsuited to achieve the de-sired results across genera-tions.

Communication style:Boomers enjoy face-to-face interactions as they fo-cus on the vocal and visualcomponents when com-municating; Gen X prefers

interacting via formalemails and over the phonewhile Gen Y likes commu-nicating via shorter emails/text/ instant messaging.Workplaces which can ac-commodate different com-munication styles are idealfor minimising this genera-tion gap.

Authority:Boomers enjoythe power and authoritythat goes with their job;Gen X are independent-thinkers who dislike au-thority while Gen Y dislikeformal chain of commandpreferring to work in teamswhere everyone is allowedto air their opinion,regard-less of their title. Work-places which assign both

younger and older em-ployees to internal taskforces handle this age di-versity well.

Business meetings: BothGen X and Y dislike tradi-tional meetings where au-thority flow is top-to-down,a style patronised bythe Boomers. On the other

hand, workplaces whichuse business meetings asplatforms for free ex-change of ideas minimisethis gap.

Rewards: Boomers dis-play status and loyalty totheir employer; Gen X arefreethinkers who thrive onrecognition amongst theirpeer group, while Gen Yenjoys jobs that offer themenhanced responsibilityand mental stimulation.Clearly, reward pro-grammes should be de-signed to motivate em-ployees across generationswhich will increase effi-ciency and productivity

Personal time: Boomersuse personal time to pur-sue hobbies; Gen X viewsfree time as 'family time'while Gen Y uses their freetime/weekends for volun-teer work, CSR initiatives,educational pursuits and

'down time' with friends.Create opportunities forgenerations to mingle andenjoy each other's compa-ny,especially when design-ing mentoring pro-grammes, off-sites andtraining programmes.


Generational gap leads tochallenges at workplaces

Years ago when I interviewed

youngsters for a position in humanresources (HR), I would invariably

ask what attracted them to the job.Nine out of 10 would say it was becausethey "liked people." Well, that's a relief,Iguess! But, how many accountants doyou know who were hired for their loveof money? Jokes apart,if only it were assimple as that. The HR value proposi-tion must address not just its tradition-al stakeholders - employees and the in-ternal organisation - but also cus-tomers, investors and influencers,suchas analysts, business alliances and reg-ulators.What constitutes value to thesestakeholders? In simple terms - some-thing that helps them achieve their ob-

jectives.To the business,HR creates val-ue by anticipating labour markettrends, forecasting skills, addressing tal-ent shortage, entering new markets,optimising costs, building brand andensuring corporate governance. For

employees, HRcreates valueby enablinglearning, in-vesting in ca-reers,creating a

fair and secureworkplace andmost of all valu-

ing the happiness quotient of employ-ees.

Business acumen:Head honchos andleaders-in-the-making are now expect-ed to possess business and organisa-tional knowledge in addition to func-tional expertise. Passionate leadership:All of the above takes passion, visionand commitment. If that means jump-ing right into "other people's business"and asking uncomfortable questions,so be it.Although HR leaders must align

with the organisational agenda, thebest ones will not hesitate to questionsomething that isn't being done right,or to propose a better alternative.Lead-ership is part vision, part undisputablebusiness logic,and part consensus.

Change management: Those leadingHR, like all other functional heads, haveto adapt to change, but unlike the rest,must also initiate, lead and sustainchange within the organisation. In theirrevised role of business - as opposed toemployee-advocate - HR leaders need toput business interest ahead of all others,which in today's dynamic environment

usually means changing the status quo.

The author,Nandita Gurjar,is asenior vice-president and group head,

HR,Infosys

(Source:The Hindu Business Line)

n his day job, VikramSingh Yadav practicesmedicine at a New Delhispital. But by night he is

entrepreneur hosting own channel onuTube.His show 'Medicald Surgical Educational TV' has over0 videos shot by Yadav that he hasloaded online.

Many individual entrepreneursd startup firms are taking to the

deo channel to build fast-growingsinesses. Since September lastar, when YouTube, the video arm

search giant Google, openedors to its partner programme ine Indian market, the number ofsinesses using the channel has

grown five fold."The number of videos

uploaded by Indian part-ners are behind only theUS," says David MacDon-ald,head of YouTube Part-ner Operations, APAC.

The big draw for video creators is theopportunity to retain nearly 55% of alladvertisement revenues generatedthrough their content on the plat-form.The speedy adoption by individ-

ual entrepreneurs and start-ups hasmade India the third largest contribu-tor to partner views globally.

This is helped by the fact thatYouTube is the third most viewed sitein India after Google and Facebook,with 29 million visitors in May this year,

according to online data providerVizisense. According to industry esti-mates, YouTube's reach extends to62% of India's internet population asopposed to 46% worldwide.

"YouTube has clearly emerged as thedefault destination for video on theweb, providing high reach to videocontent creators," says Amit Bhartiya,vice-president - mobile and Vizisense,Komli Media. Industry executives esti-mate that over a 100 start-ups are earn-

ing more than Rs 1 lakh per monthfrom monetising content on YouTube,while the top most earners could beearning between Rs.5 crore and Rs.7crore.


HR: Peoplewho meanbusiness

NTREPRENEURS, START-UPS TAKE TO YOUTUBE

The generation gap has led to differences in com-munication styles, mindsets, motivational tools and

use of technology, leading to challenges at theworkplace


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P WEREM O 3


V

edanta Group may shell out Rs.21,635 crore,up to25 per cent more than previously offered,for buy-

ing the government's remaining stakes in Hin-ustan Zinc and Balco as its earlier offers have noteen accepted so far.

If the deal goes through,this deal alone could meetver 72 per cent of the government's disinvestment

arget of Rs.30,000 crore for this year. "We have notmade any fresh proposal to the government. What-

ver proposal we gave in January,that is the only pro-osal pending.Price will depend on what methodol-gy government selects for valuation," the companypokesperson said. He added that,"this is just an en-bling resolution to comply with the UK- listing re-uirements." Vedanta has called shareholders meet-g on August 28 in London,alongside its annual gen-

eral meeting,to seek nod for the sweetening its offersin the two firms, but a company spokesperson said

that it is just an " enabling provision" and no new of-fer has been made yet to the government.

"As GoI has not,to date, accepted the company's of-fers, approval from shareholders is being sought onthe basis that the company is authorised to negotiatethe acquisition of the entirety of the GoI's interest inHZL for an aggregate consideration not more than 15per cent higher than the price offered and in Balco foran aggregate consideration not exceeding USD550million," it said in a notice to company sharehold-ers.vFor Balco's remaining stake, the company haspegged the new price at USD550 million (Rs.3,028.78crore),an increase of 62.72 per cent from the offer ofUSD338 million (about Rs.1,782 crore) made in Janu-ary.Taken together, it becomes 19.92 per cent in-crease in the offer price of January in US dollar terms.

The offer gets sweetened by 25.24 per cent in Indiancurrency terms at Vedanta's dollar-rupee exchangerate of 55.0688 (August 7).

As per the company, it has written to the govern-ment twice, in April and July, after making the offerfirst in January.The offer has not been accepted yet.Itsaid the shareholders' approval would allow it "tocomplete the transactions in a timely manner".

(Source:FPJ)

Just Dial Ltd, the Mumbai-based directory serv-ice provider promoted by V S S Mani, has re-vived its initial public offering (IPO) plan,a move

that will help private equity (PE) investors partly

monetise their holdings. The company that re-ceived capital markets regulator Securities and Ex-change Board of India's approval for the IPO inApril this year had postponed the issue as a depre-ciating rupee deterred foreign investors from Indi-an markets. The company, however, raised Rs.327crore from existing PE investors,Sequoia Capital In-dia and SAP Ventures, in June.This took Just Dial'stotal fund raising from PE funds to Rs.580 crore.

"The company does not need fresh fund as it hasalready raised that, but it needs to bring the IPO toprovide investors an opportunity to monetise theirinvestments," said a person familiar with the devel-opment, requesting anonymity. Since the IPO isnow intended for the secondary sale of shares of PEinvestors' stake and not for the issue of fresh sharesby the promoters as approved by Sebi in April, thecompany has once again filed for regulatory ap-provals by revising the proposed capital structure.

Sequoia Capital, SAIF Partners and Tiger GlobalHoldings own 18.5,19.84 and 20.22 per cent hold-ings,respectively,in the company.Besides,EGCS In-vestments has 0.93 per cent stake in Just Dial,whileSAP Ventures owns 1.59 per cent stake.


Vedanta may offer 25% more forgovt's stake in Hind Zinc, Balco

Just Dial revivespublic offer plan

Leading private insurerReliance Life has beguntalks with a few bankssale of minority stake ofto 5 per cent and to entero product distribution al-nce.The bank would servea bancassurance partnerd help expand the prod-t distribution network of

liance Life Insurance,hich is part of Anil Am-ni-led Reliance Group's fi-ncial services arm Reliance Capi-. "We are looking for a bank part-r of significant size and are in

uch with a couple of banks for al-nce. We are also open to discus-ns on giving a very small equitya bank of critical size as distribu-stock option," Reliance Life Pres-

ent and Executive Director Malayhosh said. He, however, did notentify the banks with which Re-nce Life is in discussions for a po-

ntial deal.The equity stake offeredsuch a partner would be capped5 per cent. Ghosh said that Re-

nce Life would not offer any up-nt payment for the bancassur-ce alliance.f a firm in five years can create val-

ue for us, we are open togive small equity,say up to 5per cent, to it at today's val-uation with guarantee tobuy them back at future val-uation. This is what we arepursuing while talking tobanks for a bancassurancetie-up," he said.In insuranceparlance, the term 'bancas-

surance' is used for distribu-tion of insurance productsthrough the bank branches

and currently this model of insur-ance distribution accounts for 25-30per cent of premium income for theprivate insurers in the country. "Nodoubt, we have a distribution gapand it can be served by one bank ofa significant size and reach. If we donot get the bank of that critical size,we can go for more than one bank,"Ghosh said. Last year, Reliance LifeInsurance sold 26 per cent stake toJapan-based Nippon Life Insurance

Co for around Rs.3,062 crore. Earlierthis month, Reliance Life reported awhopping 140 per cent jump in itsfirst quarter net profit to Rs.19 crorein the current financial year.

(Source:The Financial Express)

Reliance LifePresident andExecutive Di-rector MalayGhosh

U.S. court dismisses harassment

charges filed by Jack Palmer againstthe IT firm accusing it of misusing

B1 visas.Infosys Ltd's American employeeJay (Jack) Palmer, whose lawsuit againstthe IT bellwether was dismissed by a UScourt on Monday, would continue in thecompany but would be benched,a top of-ficial said.

"Palmer, who is a principal consultantby designation in the US,will continue tobe an employee of our American sub-sidiary but will be on the bench, as our

utilisation rate is currently less.He will beput on work as and when we get newprojects," Infosys chief executive S DShibulal said.

The verdict is a big relief to Infosys,as itcomes at a time when the company isalso facing a Grand Jury investigation inthe US over alleged misuse of B1 visas.

The US authorities are separately investi-gating Palmer's charges of Infosys violat-ing US visa rules. He accused the compa-ny of using short- term business visas (B-1) instead of work visas (H1- B) meant forhigh-skilled employees.

Expressing satisfaction over the ruling

by Alabama federal judge Myron H.Thompson for throwing out Palmer'scase with costs citing technicalities inthe Alabama state law, Shibulal said theverdict vindicated the company's standall along that he had no basis to supportthe charges leveled against the software

major."We are extremely pleased by the judg-

ment, which Palmer, who is a principalconsultant by designation in the US, willcontinue to be an employee of ourAmerican subsidiary but will be on thebench,as our utilisation rate is currentlyless" S. D. SHIBULAL Infosys chief execu-tive puts an end to the case and reaf-firms our policy of not retaliating againstPalmer or any of our people. We have awell defined whistleblowers policy.Whenever charges are made, we investi-

gate to verify them but will not retaliate,"Shibulal asserted.Palmer had alleged that he was ha-

rassed at work, sidelined and even re-ceived death threats for refusing to par-ticipate in an alleged Infosys' scheme touse workers on business visitor, or B- 1visas, for tasks that required an H- 1Bwork visa.Thompson ruled that some ofclaims brought by Palmer against Infos-ys were not covered by the state law.

"As evident from the ruling,Palmer didnot have a case against us, much lessdocuments to prove that we retaliatedagainst him. The fact that the case was

dismissed even before considering fortrial proved that Palmer's attempt to ac-cuse us of wrong- doing or violatingstate laws by falsifying documentsfailed," he noted.

(Source:FPJ)

INFOSYS WHISTLEBLOWER LOSES CASE

Anil Agarwal,Chairman, Vedanta Group

Reliance Life eyesbanks for stake sale


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P WEREM O4


Tolerance of 5 per cent variation in ac-tual and arm's length price main-tained, advance pricing agreement

orms soon, caution on safe harbourulesThe finance ministry has decided toring in greater clarity in transfer pricingorms. A senior finance ministry officialaid as the first step,the government is-ued a notification on Friday to clearoubts over the possibility of changes in

he permissible variations from the mar-et price to the arm's length price for as-essment year 2012-13.The notification said where the varia-on between the arm's length price de-ermined under Income Tax Act provi-ons and the price at which an interna-onal transaction had been undertakenid not exceed five per cent of the latter,

he price at which the transaction tooklace would be taken as the arm's lengthrice.The arm's length price is critical for

ompanies with international operationsnd subsidiaries trading with each other.

here is often an incentive to reduce theverall tax burden by manipulation of in-er-company prices.Five per cent tolerance in arm's lengthricing continued for the current assess-

ment yearFinance Act 2012 has fixed a 3 per centpper limit from the next assessmentear onwardsAPA norms expected to be notified by

he month-endGovt to tread cautiously on safe har-our rules as very few countries have im-

plemented theseThe finance ministry's decision to allow

a five per cent variation this year is signif-icant, as the Finance Act 2012 has fixedan upper ceiling of three per cent as thetolerance range for determining thearm's length price from assessment year2013-14 onwards.

The official said the continuation of thefive per cent tolerance range for 2012-13would be a big relief for industry.The an-nouncement of advance pricing agree-ment (APA) norms, introduced in theBudget,was next in line,said another of-ficial.

The APA norms were expected tocome by the end of the month, whichwas set to signal the government's in-tention to bring in transparent process-es,he said.The APA regime had to beginfrom July 1.But, owing to a delay in thenotification of norms,it is yet to start.

Currently, global taxation experts con-sider India as one of the most difficulttransfer pricing destinations, with morethan half the transfer pricing audits fac-

ing adjustments resulting in an addition-al tax demand and litigation.Income tax officials had gone on an

overdrive in the last two financial years tocollect as much additional revenue fromtransfer pricing adjustments as possibleand the estimates even touchedRs.80,000 crore in 2011-12 alone, im-pacting multinational companies doingbusiness in India and Indian companieswith a big presence abroad.


Transfer pricingnorms out, to

ease tax woes Trade transactions by a host of

export and import firms havecome under the scanner of cen-

tral economic intelligence agenciesfor alleged money laundering andtax evasion.

Sources said Central EconomicIntelligence Bureau and Di-rectorate of Revenue Intelli-gence officials have found de-tails of suspicious trade trans-actions by some of the firms,based in major industrial hubsof the country includingMumbai, Delhi, Suratand Ludhiana,which were ma-nipulating im-port and exportinvoices there-by generatingblack money.

According topreliminary probebased on assessmentof past two year trade transactions, anumber of ' fly by night' exportersand importers (who only export orimport goods once and then vanish)have been found in routing of black

money and the officials are trying toascertain their whereabouts, theysaid.

"We have come to know over 100such suspected trade dealings inMiddle East, the US and the UKamong others. Most of these trans-actions seem to be dubious and theaddress of the recipients and book-ing agents here have been found tobe incorrect," a source said.

He said the details of these exportswill also be shared with the con-

cerned authorities in those coun-

tries.In addition, economic intelligence

agency officials have found certaindubious consignments sent to India,most of which are lying unattended

at various air and sea cargo sta-tions, and examining them toknow their background.Last month, the DRI had

claimed to have busted overRs.1,000 crore hawala racket in

Punjab involving certain inter-national syndicates and

Delhi- based business-men.

The offi cialsclaimed they have

exposed theracket whileprobing a scamby an exporter

who fraudulentlyused inflated bills to

misuse a duty drawbackscheme run by the Finance Ministryand gained incentives worth Rs.60cr.

"There has been spurt in activityrelated to Trade Based Money Laun-

dering (TBML).All field officials havebeen told to cross check export andimport consignments in case of anysuspicion," the official said.

TBML is the process of transferr ingor moving money through tradetransactions.

In practice, this can be achievedthrough misrepresentation of price,quantity or quality of imports or ex-ports.

(Source: FPJ)

Export, import cos faceblack money probe

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