ICICI BANK LTD_2_

Financing Operations in India Madhav Kalyan Country Manager and Chief Representative ICICI Bank Sectors from US doing Business in India  Manufacturing   Trading  Auto / Auto parts  Chemicals  Pharmaceuticals  Agri Commodities  Engg Machinery  Textiles  Services  Infrastructure  Infotech  BPO  Travel / Hotels Choice of entry vehicle determines financial structure 2 Power  Telecom  Roads / Ports Financing Operation in India Equity/Risk Capital Foreign direct Investment Public Equity Issue Debt/Borrowed Capital Corporate Debt Market Corporate Loan Market Project Finance Term loans & Working capital finance External Commercial Borrowings 3 Financing Operation in India Equity/Risk Capital Foreign Direct Investment Public Equity Issue Debt/Borrowed Capital Corporate Debt Market Corporate Loan Market Project Finance Term loans & Working capital finance External Commercial Borrowings 4 Equity Capital  Various means of raising equity capital  Bringing foreign funds   Foreign direct Investment including ADRs/GDRs and FCCBs Preference share capital (not included in ECBs or FDI sectoral caps)  Raising domestic funds   Private placements Public issue of equity 5 Foreign Direct Investment  FDI: The acquisition of physical assets such as plant and equipment in India, with operating control residing in the parent corporation. Modes of bringing FDI        100% subsidiary Opening branch office Financial collaboration Joint ventures and technical collaborations Capital markets via GDRs/ADRs and FCCBs Private placements or preferential allotments 6 FDI policy in India Declared objective: to invite and facilitate foreign investment in India   Minimal procedural formalities Freely allowed in all sectors including services except few restrictions and sectoral caps Automatic approvals, only post entry notification to RBI, except few restrictions Greater transparency in case approval required No restriction on end use (except real estate and stock markets) Free repatriation of investment and returns     7 FDI policy in India (contd.)  Sectors restricted for FDI  Nuclear Energy  Railway Transport Sectors with compulsory industrial licensing, eg.  Distillation & brewing alcoholic drinks  Cigars, cigarettes and manufactured tobacco substitutes  Electronic Aerospace and defence equipment, etc.  All items reserved for SSI   Sectoral caps for bringing FDI, eg.  49% in Telecom  26% in Insurance  100% in power generation, transmission and distribution  100% in Hotels & Tourism, etc.  Preference shares (without conversion option) outside sectoral caps or ECB guidelines. 8 Financing Operation in India Equity/Risk Capital Foreign direct Investment Public Equity Issue Debt/Borrowed Capital Corporate Debt Market Corporate Loan Market Project Finance Term loans & Working capital finance External Commercial Borrowings 9 Raising Domestic equity Private Placement   Can be used to raise funds and dilute equity in favor of Indian shareholders (as per FDI sectoral caps) while limiting the no. of shareholders. Private equity/venture capital investors who provide funding for the project from the ideation stage as well as help nurture the growth. Public Issue    Well developed Equity markets with total market cap in excess of Rs 13,00,000 Crores (USD 285 Bn) as of Jan’04 Liquidity mainly in large cap and some mid cap companies Main participants – Mutual funds, Insurance companies, FIIs and retail investors 10 Private Equity   Can be used to raise funds and dilute equity in favor of Indian shareholders (as per FDI sectoral caps) while limiting the no. of shareholders. Private equity/venture capital investors provide funding for BPO operations  Many US based funds invest in Indian companies or US companies with focus on India  Funding for startups and small scale BPOs hard to come by, funding mainly for second stage or later  Typically look for the management team, their speed of execution, ability to scale, managing customer expectation, infrastructure, client relationships and dependence, order book/ pipeline and profitability. VCs/Private equity invested USD 300 Mn in 2002 and USD 500 Mn in 2003 11 Equity Markets in India  Regulatory Body  SEBI (the Securities & Exchange Board of India)   Autonomous and Statutory body Regulates & controls capital users and all functionaries between users and investors  The Stock Exchanges  23 exchanges, 2 main exchanges NSE & BSE  De-mutualised exchanges- ownership, management and trading in separate hands 12 Equity Markets in India  The Depositories  NSDL (the National Securities Depository Ltd.) and CDSL (the Central Depository Services (I) Ltd.)   The Depository Act 1996 led to its establishment Efficient, low risk and cost infrastructure for paperless handling of securities.  The Registered Intermediaries  Consist of brokers, sub-brokers, Trading & Clearing members, portfolio managers, Bankers to Issue, merchant bankers, registrars, underwriters and credit rating agencies.  Registered with SEBI and act under its regulation. 13 Guidelines for Issue of Equity Capital  Unlisted company can make a public issue of equity shares or instrument convertible into equity subject to:  Pre-issue net worth not less than Rs 10 mn in 3 out of preceding 5 years including immediately preceding 2 years  Track record of distributable profits under Companies Act 1956, for at least 3 years out of immediately preceding 5 years  Issue to be through book building only, if not complying with the above clauses or issue size more than 5 times pre issue net worth. 14 Financing Operation in India Equity/Risk Capital Foreign direct Investment Public Equity Issue Debt/Borrowed Capital Corporate Debt Market Corporate Loan Market Project Finance Term loans & Working capital finance External Commercial Borrowings 15 Corporate debt market in India   Less deep than Equity markets contrary to world markets Liquidity mainly in Govt. securities and highly rated corporate papers (AAA and AA) Primarily an OTC Market Listed corporate debt market      Listed market underdeveloped Listed debt markets are also regulated by SEBI Listing requirements   Rating must for listing of debt Credit Rating Agencies – Crisil (alliance with S&P), ICRA (alliance with Moody’s), CARE and Fitch India.  Banks investment in unlisted non SLR securities restricted to 10% of the total investments in non SLR securities. 16 Corporate debt market in India Market players  Qualified Institutional Investors (QIB)      Public financial institution Scheduled commercial banks Mutual funds Foreign institutional investor registered with SEBI Multilateral and bilateral development financial institutions 17 Financing Operation in India Equity/Risk Capital Foreign direct Investment Public Equity Issue Debt/Borrowed Capital Corporate Bond Market Corporate Loan Market Project Finance Term loans & Working capital finance External Commercial Borrowings 18 Project finance  Project Finance  Rupee project loans to fund Land & Buildings, Plant & Machinery, pre-operative and preliminary expenses (including interest for the construction and installation period) and margin money for working capital Foreign currency project loans to fund imported capital equipment, services incidental to the equipment such as technology transfer and servicing fees, and domestic project expenditure. Syndication of domestic/international debt Use of EXIM bank US funding for import of capital equipment from US    19 Project Finance (contd.)    Rupee assistance by way of subscription to debentures and shares Assistance by way of underwriting shares and debentures Guarantees for      Foreign currency loans Export credits. Suppliers of equipment Foreign lenders Bond guarantees and confirming guarantees  Equity  Mezzanine finance  Equity  Take-out finance  Assistance for a project loan would typically be for a longer tenure than for a corporate loan 20 US EXIM Bank finance  Access to competitive all-in financing for US goods and services, generally lower than locally available rates  Short, medium and long term financing (up to 14 yrs) flexibility    no collateral or security taken normally Loan guarantees and insurance offered Structured and project finance with limited recourse for setting up projects (repayment from project cash flows) 21 US EXIM Bank finance  Medium/Long term guarantee facility  Up to 85% of the contract value  Ranges from USD 0.5 mn to 10 mn  Repayment up to a period of 14 yrs  Personal guarantee if turnover of importer