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Raising capital in AsiaRaising capital in Asiaand the United Statesand the United States

September 14, 2010

India’s market on the radar –Bombay

Kapil JainErnst & Young - New Delhi

September 14, 2010 India’s market on the radar

Raising Raising capital in Asiacapital in Asiaand the and the United StatesUnited StatesAgenda

►Why India

► India Depository Receipts (IDRs)

►Disclosures in Prospectus

► IDRs – Financial Information


Raising Raising capital in Asiacapital in Asiaand the and the United StatesUnited StatesWhy India

Ø India represented 2% of the global GDPØ India has 17% of the global population

Ø March 31, 2011, GDP is expected to grow at an annualrate of 8.5%

Sector Percentage of GDP

Agriculture 17%

Industrial 28%

Service 55%



Evolving Market

Bombay Stock ExchangeØ Market capitalization $1.5 TrillionØ Average daily trade volume 700 million shares

National Stock ExchangeØ Market capitalization $1.5 TrillionØ Average daily trade volume 700 million shares

From January 2010 to August 2010 - $7.5 billion in IPO proceeds

From January 2010 to August 2010 - $4 billion in QIB proceeds

Public debt market almost non-existent


Raising Raising capital in Asiacapital in Asiaand the and the United StatesUnited StatesTrend – Index as at year end / period end –

BSE Sensex and Nifty 50

-

5 000

10 000

15 000

20 000

25 000

BSE Close NSE Close

Year End 2005Year End 2006Year End 2007Year End 2008Year End 200931-Aug-10



Why would a foreign company come and list in India?

Ø Enhanced local branding and business opportunities (localizing theforeign entity)

Ø Access to the large and growing Indian capital pool and createopportunities for future fund raising

Ø Provides a currency for an acquisition in India which otherwise wouldbe possible only through cash transfers (restrictive)

Ø Provides a source of capital to grow/expand operations in India

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Raising Raising capital in Asiacapital in Asiaand the and the United StatesUnited States

Capital Markets

Ø Regulated by Securities and Exchange Board of India(SEBI)

Ø Filings with SEBI and Registrar of Companies (ROC)

Ø Bombay Stock Exchange (BSE)

Ø National Stock Exchange (NSE)

Ø Draft Red Herring Prospectus (DRHP)

Ø Red Herring Prospectus (RHP)

Ø Revised (Guidance Note) on Reports in companiesProspectuses issued by the ICAI

Ø SEBI (Issue of Capital and Disclosure Requirements)regulations, 2009 (ICDR)


Raising Raising capital in Asiacapital in Asiaand the and the United StatesUnited StatesIndian Depository Receipts

What is an Indian Depository Receipt (IDR)Ø A mechanism that allows investors in India to invest in listed

foreign companies, including multinational companies, in Indianrupees.

Ø Depository receipts denominated in Indian Rupees issued by aDomestic Depository in India (custodian of securities registeredwith SEBI)

Ø Represent a proportional ownership interest against the fixednumber of underlying equity shares of the issuer company, known asDeposited Shares.

Ø Give the holder the opportunity to hold an interest in equity shares inan overseas company. Since it is not possible to list equity sharesof foreign companies in India, IDRs are used as a medium toown an interest in a foreign company and can be listed on theBSE / NSE.


Raising Raising capital in Asiacapital in Asiaand the and the United StatesUnited StatesIndian Depository Receipts- Eligibility

Criteria for IssuerØ Pre-issue paid-up capital and free reserves of at least $50 million,

Ø Minimum average capitalization (during the last 3 years) in its home country(country where the issuing company is incorporated and listed) of at least $100million,

Ø A continuous trading record or history on a stock exchange in its home country forat least 3 immediately preceding years,

Ø A track record of distributable profits for at least 3 out of immediately preceding 5years,

Ø Listed in its home country and not been prohibited to issue securities by anyRegulatory Body, and

Ø Has a good track record with respect to compliance with securities marketregulations

Size of IDR issue shall not be less than INR 50 crores ($12 million)


Raising Raising capital in Asiacapital in Asiaand the and the United StatesUnited StatesIndian Depository Receipts – Principal

Participants and Rolesv Issuer Company: − must be incorporated outside India and listed in the country of its incorporation.

v Domestic Depository: -Ø The Domestic Depository will issue IDRs representing the underlying equity shares of the

issuer company to investors in India.Ø The Domestic Depository must be an Indian entity appointed by the issuer company and

registered as a custodian of securities with SEBI.Ø The Domestic Depository acts as a trustee on behalf of the IDR holders and its rights and

obligations will be as specified in the Deposit Agreement signed between the issuer companyand the Domestic Depository.

v Overseas Custodian:Ø The issuer company issues equity shares to the Overseas Custodian who holds them on behalf

of the Domestic Depository and on basis of which the Domestic Depository issues IDRs inIndia.

Ø It is a foreign entity appointed by the Domestic Depository.

v The Registrar and Transfer Agent (“R&T Agent”)Ø R&T Agent provides services to the issuer company, the Domestic Depository and the

IDR holders in India primarily being registration and transfer of IDRs in India. Examples ofservices include keeping records of the IDR holders, coordinating corporate actions andhandling investor grievances.

v Merchant Banker: − Must be registered with SEBI and responsible for due diligence.


Raising Raising capital in Asiacapital in Asiaand the and the United StatesUnited StatesIndian Depository Receipts – How Issued

Ø A public issue of IDRs will be made only to residents of in India.

Ø A Draft Red Herring Prospectus (“DRHP”) would be prepared by the Company andthe Book Running Lead Managers (“BRLMs”) which would be examined by SEBI. Thesame would be available on the websites of SEBI and the BRLMs.

Ø After incorporation of comments received from SEBI, a Red Herring Prospectus(“RHP”) will be submitted to ROC and the same will be available for comments on thewebsites of SEBI, the BRLMs and the Stock Exchanges.

Ø The price band will be announced prior to the issue opening date and investorscan apply for IDRs by completing an application form during the issue period.

Ø A book building process pursuant to which the issue price will be finalized; once theissue price has been finalized, IDRs will be credited into the dematerialized accounts(DMAT) of the successful applicants.

Ø Upon final listing and trading approval, the IDRs will trade on the Stock Exchanges.


Raising Raising capital in Asiacapital in Asiaand the and the United StatesUnited StatesIndian Depository Receipts – Eligible

Criteria for Participants

Similar to a Domestic IPO, IDR eligible investors include:

Ø Qualified Institutional Buyers (QIBs) – Domestic InstitutionalInvestors and Foreign Institutional Investors and their sub-accounts registered with SEBI excluding insurance companies andventure capital funds.

Ø Non-Institutional Investors (NII): Corporates, High Net WorthIndividuals (HNIs) and Non-resident Indians.

Ø Retail Individual Investors

Ø Employees

At least 50% of the IDRs issued shall be subscribed to by QIBs



Disclosures in Prospectus – key highlights1. General instructions with respect to contents of the

prospectusThe contents of the prospectus including the financial statements of the issuing company, itssubsidiaries and associates shall be in plain English.

The prospectus shall contain all material information which shall be true and adequate soas to enable the investors to make informed decision on the investments in the issue

The issuing company shall, through a merchant banker file a prospectus certified by twoauthorized signatories of the issuing company, one of whom shall be a whole-timedDirector and other the Chief Accounts Officer or the Chief Financial Officer, stating theparticulars of the resolution of the Board or the shareholders by which it was approved, withthe Board and Registrar of Companies, New Delhi, before such issue. They shall also certifythat all the disclosures made in the prospectus are correct and adequate

The agreement made with the domestic depository shall also be furnished along with theprospectus.

The lead merchant banker who is responsible for conducting due diligence exercisewith respect to contents of the offer document, as per inter-se allocation of responsibilities,shall sign the due diligence certificate


Raising Raising capital in Asiacapital in Asiaand the and the United StatesUnited StatesDisclosures in Prospectus – key highlights

Continued..2. The issue: summary of the terms of offer shall be incorporated, including

(a) Offer and listing details (b) Plan of distribution(c) Markets(d) Sellingshareholders, if any(e) Dilution(f) Expenses of the Issue

3. Forward looking Statements

4. General Information like definitions, contact details and information, date ofopening of issue, date of closing of issue etc

5. Risk factors and Management perceptions, if any

6. Recent Developments

7. Market price information and other information concerning the sharesin the domestic market of the issuing companyDividends – dividendpolicy, rate of dividend and amounts paid for last 5 years, dividend yield ,taxation



Continued..8. Dividends – dividend policy, rate of dividend and amounts paid for last 5 years, dividend yield , taxation

9. Exchange rates - brief history of the pattern of exchange rates between the country ofincorporation/where shares are listed and India, high, low, average rates for the last five years and lasttwelve months

10. Foreign investment and exchange controls of the country of incorporation/ where shares arelisted

11. Objects of issue / use of proceeds – purpose of the issue, break-up of the cost of project for which themoney is raised through the IDR issue, means of financing such project and the proposed deploymentstatus of the proceeds at each stage of the project

12. Capitalization statement

13. Capital structure - authorized, issued and paid capital, size of present issue, holdings of majorshareholders

14. Financial Information ( covered separately)

15. Statement on material developments subsequent to the date of the last financial statements asdisclosed in the Prospectus – any which materially and adversely affect or is likely to affect the tradingor profitability of the issuing company, or the value of its assets, or its ability to pay its liabilities within thenext twelve months, and if so, an outline of such circumstances and an assessment of their likely impact



Continued..16. Management discussion and analysis of the financial Statements (by comparing

the recent financial year with the previous three financial years)17. Industry and business overview18. Details of issuing company like main object, history and present business, location

of project, installed capacity, nature of products / consumers, R&D patents andlicenses, underwriting, experts

19. Subsidiaries and associates of the issuing company – date of incorporation,equity capital, reserves, sales, PAT, EPS, NAV

20. Management – details of promoters, background, remuneration of directors and keymanagerial personnel, organizational structure

21. Securities market of the country of incorporation where shares are listed – stockexchange and listing regulations, details of the security market regulator, restriction offoreign ownerships, statement of how the enforcement of Indian securities laws wouldbe affected by the fact that the issuing company is located outside India

22. Description of IDR and the rights of the IDR holder – dividend, voting rights,procedure of conversion of IDR into shares

23. Provisions regarding transfer of shares and depository receipts24. Information relating to the depositary - Indian and International - Brief details of

the domestic depository, overseas custodian bank and depository agreement.



Continued..25. Approval of the government and regulatory authorities - information relating

to statutory and regulatory approvals required in home country for the issue andthe related aspects and their status, and approvals from Indian regulatoryauthorities

26. Taxation framework in India and the country of Incorporation/ where sharesare listed

27. Outstanding litigations and defaults28. Basis of issue price – EPS for the last three years, average return on net

worth for the last three years, NAV per share based on last balance sheet,accounting ratios comparison with industry average

29. Main provisions of articles of association / main charter of the issuingcompany

30. Material contracts and documents for inspection31. Other information – disclosure of mandatory vetting of the prospectus by the

legal counsel to the issuing company operating at the place where theregistered office of the Issuing company is situated, consent of merchantbankers, overseas custodian bank, the domestic depository and all otherintermediaries associated with the issue of IDR, fees and expenses payable tothe intermediaries involved in the issue of IDR



IDRs- FINANCIAL INFORMATIONSEBI (ICDR) Regulations – Schedule XIX - Disclosures in prospectus for issue of Indian Depository Receipts

Ø The audited consolidated or unconsolidated financial statements, prepared inaccordance with Indian GAAP (including all Accounting Standards issued by theICAI) or with the International Financial Reporting Standards (IFRS) (EU) or USGAAP, for a period of three financial years immediately preceding the date ofprospectus shall contain the following:

v Report of Auditors on Financial Statementsv Balance Sheetsv Statements of Incomev Schedules of Accountsv Statements of Changes in Stockholder’s Equityv Statements of Cash Flowsv Statement of Accounting Policiesv Notes to Financial Statementsv Statement Relating to Subsidiary Companies (in case of unconsolidated financial

statements)v Related Party transactionsv Liquidity and Capital Resources


Raising Raising capital in Asiacapital in Asiaand the and the United StatesUnited StatesIDRs- FINANCIAL INFORMATION

SEBI (ICDR) Regulations – Schedule XIX - Disclosures in prospectus for issue of Indian Depository Receipts

ØDisclosed in the issuing company’s functional currency/reportingcurrency/national currency and the reporting currency shall be restricted toSterling Pound/Euro/Yen/US Dollar.

Ø In case, the financial results are prepared as per IFRS or US GAAP, the financialresults shall be audited by a professional accountant or certified publicaccountant or equivalent (by whatever name called in the home country inaccordance with the International Standards on Auditing (ISA).

Ø Where the law of the home country requires annual statutory audit of theaccounts of the issuing company, a report of the statutory auditor on the auditedfinancial statements of the issuing company for each of the three financial yearsimmediately preceding the date of the prospectus including the profits or losses,assets, liabilities and cash-flow statement of the issuing company at the last dateto which the accounts of the issuing company were made in the specified form.Provided the gap between date of opening of issue and date of report shallnot exceed 120 days.



IDRs- FINANCIAL INFORMATION SEBI (ICDR) Regulations – Schedule XIX - Disclosures in prospectus for issue of Indian Depository Receipts

Ø The report prepared by the statutory auditors of the issuing companyshould disclose financial statements (as per relevant period in the annualreport) in Indian Rupees (at the closing rate of exchange, as at the date onwhich the financial information is presented), compiled in a tabular form andinclude the consolidated or unconsolidated income statement, consolidated orunconsolidated cash flow statements, consolidated or unconsolidated balancesheet and the capitalization statement.

ØSix Month Rule: The interim financial statements in respect of the periodending on a date which is less than 180 days prior to the date of opening of theissue have to be included in the report, if the gap between the ending date ofthe latest financial statements disclosed and the date of the opening of theissue is more than 180 days: Provided that if the gap between such date oflatest audited financial statements and the date of opening of issue is 180 daysor less, the requirement above shall be deemed to be complied with ifdisclosures in respect of material changes in the financial position of issuingcompany for such gap are disclosed in the prospectus.




Ø In case the issuing company opts to prepare and disclose the financialresults as per US GAAP, a reconciliation statement vis-a-vis Indian GAAPand summary of significant differences between the Indian GAAP and USGAAP has to be annexed with the report. If financial results are prepared inaccordance with IFRS, then issuing company shall annex the summary ofsignificant differences between the Indian GAAP and IFRS.

ØWhere the law of the home country does not require annual statutory auditof the accounts of the issuing company, a report, prepared in accordancewith Indian GAAP certified by Chartered Accountant in practice within theterms and meaning of the Chartered Accountants Act, 1949 on the financialstatements/ results of the issuing company for each of the three financialyears immediately preceding the date of prospectus including the profits orlosses, assets, liabilities and cash-flow statement of the issuing company at thelast date to which the accounts of the issuing company were made in thespecified form: Provided that the gap between date of opening of issue anddate of report shall not exceed 120 days.




Ø If the proceeds of the IDR issue are used for investing in other body(ies)corporate, then the following details of such body(ies) corporate are required:

• Names and address(es) of the body(ies) corporate, and• Financial statements and reports similar to that of the issuer

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SUBSIDIARIES AND ASSOCIATES OF THE ISSUING COMPANY:

(a) The following information for the last three years based on the audited statements inrespect of subsidiaries and associates of the issuing company:(i) Date of Incorporation (ii) Nature of activities (iii) Equity Capital (iv) Reserves (excludingrevaluation reserve) (v) Sales (vi) Profit after tax (PAT) (vii) Earnings per share (EPS) and(viii) Net Asset Value (NAV)

(b) If the subsidiaries and associates are not required to prepare such audited statementsas per the laws prevailing in those countries, the same may be certified as true and correctby the Board of Directors and the management of such companies, provided a certificatefrom a certified public accountant or equivalent practicing in the concerned country issubmitted to the Board.

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