Contracts Act 1956

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					    An Overview of Domestic and Overseas Markets

In House Congress, Mumbai
At Grand Hyatt, April 29, 2008
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
   Domestic Stock Exchanges
     Initial Public Offering (“IPO”)
     Offer for Sale
     Public Issue by Listed Companies including Rights
     Qualified Institutions Placement (“QIP”)
     Preferential Allotment
   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”)
   Eligibility criteria for primary issuance (IPO or
    Offer for Sale)
    i.     Rs. 3 Crores (Net Tangible Assets) in last 3 years
    ii.    Rs. 1 Crore (Net Worth) in last 3 years
    iii.   Distributable profits for 3 years in last 5 years
    iv.    In case of change of name, 50% revenues from
           activity suggested by new name
    v.     Aggregate of all issues in one financial year not
           to exceed 5 times issuer’s pre issue net worth
   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
     10 Crores minimum post issue face value capital;
     2 years of compulsory market making post issue
   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
     rights issue by a listed company
   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
 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
Other Requisites for public offerings
  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
   Issue of shares or of convertible securities by a company to
   Qualified Institutional Buyers (“QIBs”) (Chapter XIIIA of DIP
      ▪ Equity shares listed for one year preceding the date of
        notice to shareholders
      ▪ Minimum public shareholding to be maintained
    ▪ No placement to QIB who is promoter or related to
    ▪ Pricing as per the DIP guidelines
    ▪ Non applicability of Chapter XIII of DIP guidelines
 Minimum Number of allottees:
   2, where the issue size is less than or equal to Rs. 250
   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
 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
   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
                              21 days gap between closing
New exchange for SMEs         and listing to be shortened to
                                           7 days

             QIBs to pay 100% upfront for
Indian Companies can raise capital overseas by issue of:

Note: Indian companies listing overseas must either before
or simultaneously list on the Indian stock exchanges
 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
   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”)
 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 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
 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.
 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.
Choice of stock exchange depends upon:

Depth of the Market

                      Availability of Funds

 NewYork 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
  ▪ 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
 Luxembourg Stock Exchange (LuxSE)
  ▪ Traditional favourite
  ▪ Listing is expeditious
  ▪ Cost of raising funds at Luxembourg is lower, compared to NYSE or
  ▪ 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
 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
 GDP growth in India: 2007-08 –                 IMF
            8.7%                               7.9%        CMIE
                         GDP growth forecast
                          for India: 2008-09
                                                            7.0 to

Inflation scenario for                            Trade Deficit has
    India: 2008-09                                widened over the
                                     RBI             past year
                                  (Feb ‘08)
Money supply in the economy as on                  Rs. 39,98,887 Crores
         March 03, 2008

                           Bank Lending Rates      Representing a Y on Y
    Interest Rates              (2007-08)            increase of 21%
                           12.75% to 13.25%
                                                           Total foreign funds
Exchange Rate Rs./$                                        inflow in 2006-07 :
Year         Rs./$         Repo Rate: 7.75%                 US$ 29.1 billion
2006-07      45.28         Reverse Repo Rate: 6%
2007-08                                                    Total foreign funds
Qtr 1        41.25                                          inflow is 2007-08
Qtr 2        40.54                                            (till Feb ’08) :
Qtr 3        39.47         RBI purchased US$ 75.4
                                                             US$ 56.4 billion
Qtr 4        39.83         billion from currency market
2008-09       39.95        in 2007-08 till Feb ‘08
(Week ending Apr 18)
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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